[Federal Register: May 2, 2007 (Volume 72, Number 84)]
[Rules and Regulations]
[Page 24357-24446]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02my07-8]
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Part II
Department of the Interior
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Bureau of Land Management
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43 CFR Parts 3000, 3200, and 3280
Geothermal Resource Leasing and Geothermal Resources Unit Agreements;
Final Rule
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DEPARTMENT OF THE INTERIOR
Bureau of Land Management
43 CFR Parts 3000, 3200, and 3280
[W0-310 9131 PP]
RIN 1004-AD86
Geothermal Resource Leasing and Geothermal Resources Unit
Agreements
AGENCY: Bureau of Land Management, Interior.
ACTION: Final rule.
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SUMMARY: This final rule revises the Bureau of Land Management's
geothermal resources leasing and unit agreement regulations to
implement the Energy Policy Act of 2005. The rule restructures
regulations concerning the general geothermal leasing process and
revises regulations on royalties and readjustment of lease terms,
conditions, and rentals. The rule also revises regulations on lease
duration and work commitment requirements, annual rental and credit of
rental towards royalty, unit and communitization agreements, and
acreage limitations. Additional revisions required by the Energy Policy
Act include various technical corrections. Other changes in sections
unaffected by changes in the statute clarify existing procedures,
improve grammatical construction, conform the regulations to new
administrative regulatory standards, and correct existing errors.
DATES: This rule is effective June 1, 2007.
ADDRESSES: Further information or questions regarding this final rule
should be addressed in writing to the Director (WO-300), Bureau of Land
Management, 1849 C St., NW., Washington DC 20240.
FOR FURTHER INFORMATION CONTACT: Kermit Witherbee at (202) 452-0385 or
Ian Senio at (202) 452-5049. Persons who use a telecommunications
device for the deaf (TDD) may contact these persons through the Federal
Information Relay Service (FIRS) at 1-800-877-8339, 24 hours a day, 7
days a week.
SUPPLEMENTARY INFORMATION:
I. Background
II. Discussion of Final Rule and Responses to Comments on Proposed
Rule
III. Procedural Matters
I. Background
On July 21, 2006, the Bureau of Land Management (BLM) published a
proposed rule to amend existing geothermal resources leasing and unit
agreement regulations (71 FR 41542). This final rule adopts most of the
provisions of the proposed rule and in so doing implements the
geothermal energy provisions of the Energy Policy Act of 2005 (Pub. L.
109-58) (Energy Policy Act), which became law on August 8, 2005.
Sections 221 through 236 of this Act address geothermal development and
substantially amend the Geothermal Steam Act of 1970. The Geothermal
Steam Act of 1970, as amended, 30 U.S.C. 1001-1028, provides the
authority for the BLM to allow for the exploration, development, and
utilization of geothermal resources on BLM-managed public lands, as
well as geothermal resources on lands managed by other surface
management agencies, such as the United States Forest Service.
One of the more significant changes in the Energy Policy Act is the
general requirement, with a few exceptions, for geothermal resources to
be offered through a competitive leasing process. Lands not
successfully sold in the competitive process can be leased
noncompetitively.
The Energy Policy Act also made significant changes in the way
royalties are assessed on Federal leases. As discussed in the preamble
to the proposed rule (71 FR at 41543), these changes were similar to,
and in some cases identical to, recommendations in a 2005 report from
the Geothermal Valuation Subcommittee (Subcommittee) of the Minerals
Management Service's (MMS) Royalty Policy Committee (RPC). To simplify
the valuation methodology for royalty purposes, the Energy Policy Act
requires a royalty based on the ``gross proceeds'' from the sale of
electricity from Federal geothermal leases issued after August 8, 2005
(other than leases issued in response to applications that were pending
on that date for which the lessee does not elect to be subject to the
royalty regulations required by the Energy Policy Act) multiplied by a
royalty rate established by the BLM, rather than on the ``net back''
system that was used prior to the Energy Policy Act. Lessees who use
geothermal resources directly will pay fees according to a fee schedule
established by the MMS. Under the new law, existing lessees have the
opportunity to convert the royalty provisions in their leases to those
of the Energy Policy Act. The MMS is publishing a final rule to
implement the changes in the Energy Policy Act simultaneously with
BLM's final rule. The BLM and the MMS have worked together to
coordinate their regulations.
References to the MMS regulations appear throughout the BLM's final
rule because the BLM and the MMS share responsibility with regard to
the geothermal program. The BLM holds lease sales, issues geothermal
leases, and generally administers the leases. The BLM establishes the
terms of the leases, including royalty rates, and enforces the lease
terms. The MMS is responsible for collecting rents (other than the
first year's rent) and royalties, and for enforcing the royalty
obligations. The MMS regulations contain provisions that carry out its
responsibilities. Appropriate cross-references are contained both in
the BLM and the MMS regulations.
Other changes made by the Energy Policy Act include restructured
lease terms (length of time a lease is in effect) and lease term
extensions, and provisions for leases for exclusive direct use of
geothermal resources, without sale, that may be issued
noncompetitively. The Act also increases the maximum acreage of an
individual lease and gives the Secretary of the Interior greater
authority to require lessees to commit to unit agreements to conserve
geothermal resources.
Most of the changes in the regulations of this part implement the
new provisions of the Energy Policy Act. Other changes in sections
unaffected by changes in the statute clarify existing procedures,
improve grammatical construction, conform the regulations to new
administrative or regulatory standards, and correct existing errors.
Changes based on the Energy Policy Act and substantive changes
unrelated to the change in statute were discussed in detail in the
preamble to the proposed rule. Both the preamble to the proposed rule
and this preamble set out the basis and purpose of this final rule. In
this preamble, we explain how the final rule differs from the proposed
rule and discuss comments received on the proposed rule and our
responses. References in this preamble to the previous rule mean the
rule that is currently codified in 43 CFR and not the proposed
regulations.
II. Discussion of Final Rule and Responses to Comments on Proposed Rule
The BLM received nine comments on the proposed rule published in
the Federal Register on July 21, 2006 (71 FR 41542). In this section of
the preamble, we respond to the substantive comments by subpart and/or
section number. To facilitate understanding, we have also generally
included a brief summary of what the subpart or section
[[Page 24359]]
provides. For additional explanation of the changes made to each
section, please refer to the proposed rule at 71 FR 41543-41565.
Many of the comments received addressed both the BLM proposed rule
and the MMS proposed rule. The BLM referred to the MMS any comments it
received regarding the MMS rule. For responses to those comments,
please see the MMS final rule being published simultaneously with this
final rule.
Subpart 3200--Geothermal Resources Leasing
In subpart 3200, we changed the definitions section and added three
sections to the end of the subpart.
Definitions
Section 3200.1 contains definitions of terms used throughout parts
3200 and 3280. As explained in the proposed rule, we removed the
definitions of terms and concepts that are no longer used or were not
used previously, added new definitions for terms or concepts that are
new in this rule, and clarified other terms. The definitions we deleted
were: ``additional term,'' ``cooperative agreement,'' ``extended
term,'' and ``pay instead of produce in commercial quantities.'' The
new terms defined are: ``initial extension,'' ``additional extension,''
``direct use,'' ``direct use lease,'' ``gross proceeds,'' ``commercial
production or generation of electricity,'' and ``commercial
production.'' Terms clarified are: ``geothermal exploration permit''
and ``geothermal steam and associated geothermal resources.''
In this final rule, we revise the definition of ``commercial
production or generation of electricity,'' by adding language to
clarify that the term includes electricity or energy that is required
to produce the resource, as well as that required to convert the
resource into electrical energy for sale. This was the BLM's intent in
the proposed rule. We also specify that the use of resources in this
manner must be reasonable in order to discourage waste of the resource
and to conform to the parallel MMS provision at 30 CFR
202.351(b)(2)(ii). As explained in the preamble to the proposed rule
(71 FR 41543), the definition of this term is important in determining
whether geothermal resource production is subject to royalties or
direct use fees, as referenced in 30 U.S.C. 1004(b), or neither. The
BLM believes it is more appropriate to consider these components as
part of the electrical generation process, both: (1) To encourage the
production of geothermal resources (by not imposing a fee for a
necessary cost of electricity generation); and (2) Because measurement
of such usage would be difficult and expensive and the amount of moneys
generated through the collection of fees would be quite small relative
to the measurement effort. The BLM expects that an initial evaluation
will occur at the permitting stage of whether the amount of the
electricity used to produce the resource and to convert the resource
into electricity is likely to be reasonable.
In reviewing subpart 3205 of the proposed rule (Direct Use
Leasing), we concluded that, in accordance with the statutory
provisions at 30 U.S.C. 1003(f), the definition of a ``direct use
lease'' should include that such a lease is issued noncompetitively.
Section 3205.6 of the proposed (and final) rule provides, mirroring the
statute, that the BLM may issue a direct use lease only if, among other
things, it ``determines there is no competitive interest in the
resource * * *.'' If the BLM determines that land for which an
applicant applied for a direct use lease is open for geothermal leasing
and is appropriate for exclusive direct use operations (see definition
of ``direct use''), and that there is competitive interest, it will
include the land in a competitive lease sale with lease stipulations
limiting operations to exclusive direct use. Unlike a direct use lease
that is issued noncompetitively, under a competitive lease that is
limited to exclusive direct use, the resource may be sold (but it may
not used by the operator or a purchaser for the commercial generation
of electricity), and the acreage restrictions will be those applicable
to competitive leases rather than direct use leases. We have thus
revised the definition of ``direct use lease'' to read as follows:
``Direct use lease means a lease issued noncompetitively in an area BLM
designates as available exclusively for direct use of geothermal
resources, without sale, for purposes other than commercial generation
of electricity.''
We received no comments on this section and, except for revising
the definition of ``direct use lease'' as discussed above, have adopted
it as proposed.
Types of Leases
Final section 3200.6 provides general information about the two
types of geothermal leases that are issued under this rule: (1) Leases
that may be used for any type of geothermal use, such as commercial
generation of electricity or direct use of the resource, issued either
competitively under subpart 3203 or noncompetitively under subpart
3204; and (2) Leases that may only be used for direct use without sale,
i.e., direct use leases issued under proposed subpart 3205. We received
no comments on this section and have adopted it as proposed. We discuss
permitted uses under different types of leases in more detail in the
discussion of subpart 3205 (Direct Use Leasing), below.
Transition Rules
The Energy Policy Act at 30 U.S.C. 1005(d), directed that the
Secretary by regulation establish transition rules for leases issued
before August 8, 2005. The only transition requirement in that section
was that leases nearing the end of their terms on August 8, 2005, must
be allowed 2-year extensions under certain circumstances.
Under the authority of 30 U.S.C. 1005(d), final sections 3200.7 and
3200.8 contain transition rules, addressing how this final rule applies
to: (1) Leases issued before August 8, 2005, the enactment date of the
Energy Policy Act; and (2) Leases issued on or after August 8, 2005,
but based on lease applications pending on August 8, 2005.
Final section 3200.7(a)(1) makes leases issued before August 8,
2005, generally subject to parts 3200 and 3280, except they are subject
to the regulations in effect on August 8, 2005 (43 CFR parts 3200 and
3280 (2004)), with regard to regulatory provisions relating to
royalties, minimum royalties, rentals, primary term and lease
extensions, diligence and annual work requirements, and renewals. Final
section 3200.7(a)(1) and 3200.8(a) include a citation to 43 CFR parts
3200 and 3280 (2004) to clarify that these were the regulations in
effect on August 8, 2005. The substance of the 2004 edition of 43 CFR
parts 3200 and 3280 is the same as the 2005 and 2006 editions of the
CFR for those parts.
Final section 3200.7(a)(2) provides that the lessee of a lease
issued before August 8, 2005, may elect generally to be subject to all
of the new regulations in parts 3200 and 3280, so long as the lessee
makes such an election no later than 18 months after the effective date
of this rule, i.e., no later than December 1, 2008. The provision notes
that changes relating to royalty terms are possible only under the
royalty conversion rules of final section 3212.25. As explained in the
preamble to the proposed rule (71 FR 41544), this provision allowing an
existing lessee to elect to be governed by the new regulations is
within the BLM's authority under 30 U.S.C. 1005(d), and was prompted by
the statutory provision at 30 U.S.C. 1003(d)(2) allowing such an
election to lessees whose lease applications were pending on August 8,
2005.
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In reviewing this section during drafting of the final rule, we
became aware that the language was confusing regarding whether a lessee
could make an election under section 3200.7(a)(2) without also
obtaining a conversion of royalty terms under section 3212.25. We have
therefore added a sentence to this section clarifying that a lessee
seeking to make an election under section 3200.7(a)(2) must also obtain
a royalty rate conversion under section 3212.25 to make the election
under section 3200.7(a)(2) effective. This section alternatively allows
a lessee to convert only the royalty rate terms of the lease under
subpart 3212.
Section 3200.7 provides that a lessee that does not convert lease
terms relating to royalties may apply for a production incentive under
final subpart 3212 (if eligible under that subpart). In addition, the
section provides that the lessee of a lease issued before August 8,
2005, that was within 2 years of the end of its term on that date, may
apply to extend the lease for up to 2 years, to allow achievement of
production under the lease or to allow the lease to be included in a
producing unit.
Final section 3200.8 addresses geothermal lease applications
pending on August 8, 2005, and the status of leases issued pursuant to
such applications. The section provides that such leases are subject to
parts 3200 and 3280, except that they are subject to the regulations in
effect on August 8, 2005 (43 CFR parts 3200 and 3280 (2004)), with
regard to regulatory provisions relating to royalties, minimum
royalties, rentals, primary term and lease extensions, diligence and
annual work requirements, and renewals. However, such lessees may elect
to be subject to the new regulations in their entirety. Under such an
election, the royalty rate for such leases will convert to those
specified in sections 3211.17(a) and 3211.18(a) and not under the
process in section 3212.25.
One commenter asked whether someone could top-file over a lease
application that was pending on August 8, 2005, and whether the BLM
could convert the land to a KGRA (Known Geothermal Resource Area).
The informal answer given to this question at a public meeting in
Reno, Nevada on August 31, 2006, was that a noncompetitive lease
application pending on August 8, 2005, would have priority. However, if
two or more noncompetitive lease applications filed before August 8,
2005, overlap in area, it is possible that the BLM, in processing the
applications under the previous regulations, may reclassify the area as
a KGRA and require a competitive sale.
Another comment addressing proposed sections 3200.7 and 3200.8
noted that in referencing the transition provisions that also apply in
the MMS rules, the BLM does not define or use the same transition terms
(i.e., Class I, Class II, and Class III leases) as does the MMS (see
the MMS final rule, 30 CFR 206.351). The commenter suggested that it
might provide clarity if the BLM regulations utilized the same
terminology as the MMS since the two rules have interrelated
provisions.
We did not change the proposed rule in response to this comment.
The MMS's classification system was designed to describe types of
leases for royalty purposes only. In its final rule the MMS has revised
its lease class definitions, but neither the proposed nor the final MMS
class definitions fully describe the categories of leases for the BLM's
purposes. For example, the MMS:
(1) Class I leases include both: (a) Leases existing on August 8,
2005 (existing leases), for which the lessee has not converted the
royalty terms under section 3212.25; and (b) Leases issued pursuant to
lease applications pending on August 8, 2005 (pending applications),
for which the lessee has not made an election under section 3200.8(b).
The BLM must, however, distinguish between these two sub-categories
because non-converting existing leases are eligible for production
incentives under section 3212.18, whereas leases issued pursuant to
pending applications that do not elect to be subject to the new
regulations are not eligible for production incentives;
(2) Class II leases do not distinguish between direct use leases
under subpart 3205, which are restricted to direct use of the resource,
and regular leases under subparts 3203 or 3204, which may have direct
use. Nor does the Class II designation distinguish between leases
issued pursuant to application or competitive sale after August 8,
2005, and those issued in response to pending applications where the
lessee elects to be subject to the new regulations under section
3200.8(b); and
(3) Class III leases do not distinguish between: (a) Existing
leases that convert only under section 3212.25 (royalty conversion
only); and (b) Existing leases that convert under section 3200.7(a)(2)
(electing to be subject to all new regulations, which must include a
conversion under section 3212.25).
None of the foregoing distinctions is necessary for the MMS royalty
purposes, but the BLM must make these distinctions in explaining to
different categories of lessees what options Congress made available to
them. For these reasons, the BLM did not use the MMS classification
system in its proposed rule. We did not change the rule in response to
this comment.
Subpart 3201--Available Lands
Subpart 3201 addresses which lands are available for geothermal
leasing and which lands are not available for geothermal leasing. It is
substantively unchanged from the previous subpart. We made one minor
change to section 3201.10 to make it clear that public lands and
acquired lands that are administered by the Department of the Interior
are available for leasing unless they are withdrawn from such use. We
received no comments on this subpart.
Subpart 3202--Lessee Qualifications
Subpart 3202 addresses who may hold geothermal leases,
qualifications to hold a geothermal lease, whether other persons are
allowed to act on an applicant's behalf, and what happens if an
applicant for a lease dies. The subpart is substantively unchanged from
the previous subpart. We received no comments on this subpart and have
adopted it as proposed.
Subpart 3203--Competitive Leasing
Subpart 3203 explains the new process for competitive leasing,
which requires competitive leasing to the highest responsible qualified
bidder except as otherwise specified. This differs from the previous
process, which provided for competitive bidding only for lands within a
KGRA or lands from terminated, expired, or relinquished leases, or at
the BLM's discretion when there was public interest.
One commenter objected to ``leasing the geothermal resource for
free.'' The BLM disagrees that the geothermal resource will be leased
for free. In accordance with the statute, final subpart 3203 provides
that companies will pay bonus bids for competitive leases, and final
subpart 3211 provides that lessees will pay rentals and either
royalties or fees. Regarding the costs the government incurs, final
section 3203.12, discussed below, provides that nominators of lands
must pay a fee of $100 per nomination plus $.10 per acre, and final
sections 3203.17 and 3204.10 provide that lease applicants must pay a
processing fee to reimburse the government's processing costs.
One commenter stated that geothermal development is more akin to
minerals development than to oil and gas development in that the rights
to develop the land need to be secured before significant exploration
can occur
[[Page 24361]]
because of the risk and capital cost involved. To facilitate leasing
and exploration within shorter timeframes, the commenter recommended
categorical exclusions to expedite exploration permits and greater use
of lease stipulations to address environmental or other issues, even if
such stipulations made future development of the leasehold contingent
on subsequent permitting and National Environmental Policy Act (NEPA)
processes. Another commenter indicated that the timeframes for
compliance with the NEPA slow down the overall process and suggested
that a developer could do an environmental assessment to comply with
the NEPA after the developer has been issued a lease.
We did not change the rule in response to these comments. The
Energy Policy Act did not address requirements under the NEPA with
regard to geothermal leasing, and the suggested changes are beyond the
scope of these regulations and the July 2006 proposed rule.
Final section 3203.5 explains the three stages of the competitive
leasing process and summarizes the four specific circumstances in which
leases would be issued on a non-competitive basis that are addressed in
detail at subparts 3204 and 3205.
One commenter submitted an article entitled ``What We Have Lost,''
authored and endorsed by numerous individuals in the geothermal
industry. The article contends that competitive leasing will remove the
incentive for companies, large or small, to invest in pre-lease
exploration and project assessments, and maintains that an all-
competitive leasing process does not fit geothermal resource
development.
As the commenter realizes, the statute mandates competitive
leasing. Any revision of the system prescribed by the statute would
have to occur through Congressional action.
One commenter asked if land can be included in a competitive lease
sale only through the nomination process. In considering this question,
the BLM concluded that there may be instances where it would be in the
public interest to include land in a competitive sale that has not been
nominated. In response to this comment, we have revised the language of
sections 3203.5 and 3203.10 to clarify that the BLM may include land in
a competitive lease sale on its own initiative. We have also revised
the language of section 3203.13 to provide that the BLM may hold a
competitive lease sale on its own initiative even in a state where no
nominations are pending. Examples of when competitive sale of lands
that have not been nominated might be in the public interest include
adding to a lease sale parcels which might otherwise be drained by
wells on adjacent acreage, or putting up for competitive sale land for
which the BLM received an application for a direct use lease where the
BLM determines that there is competitive interest.
Final section 3203.10 describes the process for nominating lands
for competitive sale. In accordance with the statutory amendments, it
increases to 5,120 acres (from the previous 2,560 acres) the maximum
size of a lease, unless the area to be leased includes an irregular
subdivision. This section also explains how a nominator must describe
the lands nominated. These land description provisions were previously
found at section 3204.11. The only change from those provisions is a
clarification that lands surveyed under the public land rectangular
survey system are to be described to the nearest aliquot part. This
section also makes clear that a nominator may submit more than one
nomination, as long as each nomination satisfies the acreage and land
description requirements and includes the required filing fee, and that
the BLM may reconfigure lands to be included in each parcel offered for
sale.
Two commenters stated that the proposed rule did not address the
situation of geothermal projects that contain both Federal and non-
federal lands, which one commenter said constituted the majority of its
projects. These commenters were concerned that a competitive leasing
system could result in a developer having to wait up to 2 years to find
out whether it is able to acquire a lease to Federal land parcels
adjacent to or intermixed with non-federal lands on which leases could
be speedily acquired. They stated that if a developer cannot control
the entire resource, it cannot secure financial backing to build a
power plant. They recommended revising the regulations to provide for
``direct''--by which they apparently meant ``non-competitive'' but not
exclusive direct use--leasing of Federal lands in a number of scenarios
which would provide effective control to a holder of non-federal
interests.
The commenters appear to be suggesting that an entity that already
controls the majority of leases overlying a geothermal resource area
should have the right to acquire a lease on any contiguous Federal
lands. We did not change the rule in response to these comments because
the statute requires a competitive leasing process except in specific
circumstances. The circumstances under which Congress decided to allow
noncompetitive leasing do not include the leasing of adjacent or
intermixed Federal lands. Implementing this suggestion would require
statutory change. We note that once all of the Federal and private
lands are leased, control of the resource can be achieved through
commitment of all the lands, both Federal and private, to a unit. The
unit provisions are in subpart 3280 and are discussed below.
The commenters also suggested that a less-favored alternative to
noncompetitive leasing of adjacent or intermixed lands would be to
grant the ``contiguous resource owner'' a right of first refusal in a
competitive lease sale. In informal discussions at the public meeting
on the proposed geothermal rule in Reno, a BLM representative may have
indicated agreement with the suggestion that a contiguous resource
owner might be able to obtain a right of first refusal. A careful
reading of the statute, however, makes it clear that it does not
provide a right of first refusal as an option to any bidder in a
competitive lease sale. The language of the statute is: ``Except as
otherwise specifically provided by this Act, all land to be leased that
is not subject to leasing under subsection (c) [noncompetitive leasing
when no bids are received in a competitive lease sale] shall be leased
* * * to the highest responsible qualified bidder * * *.'' 30 U.S.C.
1003(b)(1). The specific exceptions to including land in a competitive
lease sale involve lands subject to mining claims, leases issued
pursuant to applications pending when the statutory amendments were
enacted, and direct use leases. Because Congress did not provide an
exception for resource owners of contiguous or intermixed lands, the
Department has no authority to make such an exception.
One commenter asked how lease nominations would be prioritized in
terms of processing under the NEPA, and whether all of the pending
lease applications would be administered before the BLM began working
on nominated lands.
As explained at the public meeting in Reno, prioritization in terms
of NEPA processing is not within the scope of these regulations. In
general, nominations are processed on a ``first-in, first-out'' basis.
However, the BLM may establish priorities based on the adequacy of
existing NEPA documents in order to issue leases as efficiently as
possible. In such circumstances, it is possible that newer nominations
could be processed ahead of older ones. The BLM will begin processing
nominated lands as the nominations are received.
[[Page 24362]]
Final section 3203.11 implements the new statutory provision, at 30
U.S.C. 1003(e), that the BLM may offer parcels as a block at a
competitive sale when it is reasonable to expect that a geothermal
resource that can be produced as one unit underlies those parcels.
One commenter inquired ``who, when and how'' it will be determined
that leases should be issued as a block to avoid the ``checkerboard''
ownerships often arising through the competitive process. In response
to this comment, we have revised the language of section 3203.11(a) to
clarify that a nominator may request that leases be issued as a block
or the BLM may offer leases as a block on its own initiative, and that,
in either case, the BLM will offer parcels as a block only if
information is available indicating that a geothermal resource that
could be produced as one unit can reasonably be expected to underlie
such parcels. The timing of block requests would be at the time of
nomination by the nominator, or by the time of the sale notice if by
the BLM's initiative. At the time of nomination, a nominator could
bring to the BLM's attention any concerns it may have that checkerboard
ownership of the parcels could impede development of the geothermal
resource. The BLM may take that into consideration in deciding whether
to offer the nominated lands as a block or as individual parcels.
One commenter suggested that proposed section 3203.11 be
strengthened by requiring that block nominations be accompanied by
geologic and scientific data sufficient to show that the nominated
lands will most likely contain geothermal resources from the same pool
or structure, and not rely solely on the BLM's general knowledge of the
area. We believe that proposed section 3203.11 already addresses the
commenter's concern by requiring that a nominator submit information to
support its request. In response to this comment, however, we moved the
language in section 3203.11(b) of the proposed rule, that ``BLM may
request that you provide additional information'' to section (a) to
clarify that it pertains to nomination block requests, and we
strengthened it by replacing ``request'' with ``require'' so that it
reads: ``BLM may require that you provide additional information.'' The
BLM will not offer parcels as a block unless it determines that a
geothermal resource that could be produced as one unit can reasonably
be expected to underlie such parcels, and will consider available
information to make that determination.
Final Sec. 3203.12 provides for a filing fee for nominations of
lands. In this final rule, the amount of the fee--$100 per nomination
plus $0.10 per acre of lands nominated--was moved from proposed section
3203.12 to the fee schedule at section 3000.12 as explained in the
preamble to the proposed rule (71 FR 41545). We also made a conforming
amendment to section 3000.12. As with all fees in the fee schedule in
section 3000.12, these amounts will be adjusted annually according to
the change in the Implicit Price Deflator for Gross Domestic Product by
way of publication of a final rule in the Federal Register, and will
subsequently be posted on the BLM Web site (http://www.blm.gov) (see
section 3000.12(a)).
One commenter stated that government agencies incur costs with
leasing operations and those costs should be covered. The commenter
wrote that the BLM and others agencies need these funds to monitor
nearby springs and monitor the effects of the extraction.
The BLM agrees that the costs it incurs as a result of leasing
operations should be reimbursed by the lessees. For this reason, final
section 3203.12 requires a filing fee for nominations of land, as
further discussed below, and final sections 3203.17, 3204.10, 3205.10,
and 3211.10 provide that lease applicants must pay a processing fee to
reimburse the government's processing costs. We did not change the rule
in response to this comment. We discuss monitoring below in connection
with final section 3206.11 in response to another part of this
commenter's comments.
Two commenters opposed the concept of nomination fees. One
commenter stated that the nomination process gives the BLM the benefit
of a company's exploration expertise, providing the BLM and the public
with valuable insights for which the BLM should not charge a fee. The
commenter asked at the public meeting in Reno whether a nomination was
limited in acreage, that is, whether the $100 filing fee was per lease,
and in later written comments stated that the fee ``is `per parcel,''
which has apparently been interpreted as `per lease.' '' The commenter
suggested that charging a nomination fee further discourages geothermal
development on Federal lands. Another commenter suggested that the
nomination fee should only cover administrative costs, and that these
funds should be retained by the local BLM office for that specific
purpose.
We did not change the rule in response to these comments. As
explained in the preamble to the proposed rule, the BLM is authorized
to charge reasonable filing fees under Section 304(a) of the Federal
Land Policy and Management Act of 1976, 43 U.S.C. 1734(a) (71 FR
41545). Congress gave no indication in its amendments to the Geothermal
Steam Act that it intended to insulate geothermal nominators from fees.
The general Federal policy regarding fees, also discussed in the
preamble to the proposed rule, is to charge a processing fee that
recovers the agency's reasonable processing costs, which corresponds to
the suggestion by the second commenter just cited. The BLM does not at
this time have the data necessary to determine its actual costs of
processing nominations, but our experience indicates that those costs
far exceed $100 per nomination and $0.10 per acre. In order to
discourage frivolous nominations, we proposed this nominal filing fee
(see Solicitor's M--Opinion No. M-36987, ``BLM's Authority to Recover
Costs of Minerals Document Processing,'' at n.6). We will collect data
on the actual costs of processing these nominations and expect to
propose a processing fee to cover reasonable agency costs in the
future.
One commenter at the August 31, 2006, public meeting in Reno asked
whether a nomination of lands for a competitive sale is limited in
acreage. The response correctly noted that, as provided in proposed and
final section 3203.10(b), a nomination may not exceed 5,120 acres
(unless the area to be leased includes an irregular subdivision), which
is the maximum size of a lease (see section 3206.12). We want to
clarify, however, that the nomination fee is per nomination, not per
lease. Proposed and final section 3203.12 states that a nominator must
submit the filing fee ``with your nomination.'' While each nomination
is limited to the maximum acreage of a lease, in ``parceling'' the land
before the lease sale (see explanation below) BLM may decide to offer
the nominated lands as more than one lease. Thus, the $100-per-
nomination filing fee could cover more than one eventual lease, but
cannot cover more than 5,120 acres (with the exception noted).
There also appears to be some confusion regarding the terminology
of ``nomination,'' ``lease,'' and ``parcel.'' After nomination, but
prior to the lease sale, the BLM will prepare the nominated lands for
competitive sale. This process, often referred to as ``parceling,''
involves: subdividing nominated areas into areas that do not
[[Page 24363]]
exceed the maximum allowed size for a lease; accurately describing the
lands in conformance with the legal land system; and attaching
appropriate stipulations from the land use plans. Thus, the fee is
neither ``per parcel'' nor ``per lease,'' but ``per nomination.'' It is
possible that after parceling, lands offered in a competitive sale may
not be configured as originally nominated. In general, the BLM refers
to lease offerings as parcels.
Regarding the comment that fees collected should be retained by the
local BLM office, we explained in the preamble to the final minerals
cost recovery rule (70 FR 58861, October 7, 2005) that the ``BLM
intends to structure its budget processes to return fees collected to
the BLM office which processes the actions.'' Thus, the BLM has already
addressed future implementation of this suggestion.
Final section 3203.13 provides that the BLM will hold a competitive
lease sale at least once every 2 years in states where nominations are
pending, and allows for a sale to include lands in more than one state.
As explained above, we have also added language to clarify that the BLM
may include land in a competitive lease sale on its own initiative. As
explained in the preamble to the proposed rule (71 FR 41545), we
deleted the provision at previous section 3205.13 regarding the fair
market value of bids because we concluded that the competitive bidding
process itself is a reflection of the fair market value of the lease.
Moreover, eliminating this bidding floor may encourage more competitive
bidding, which both serves the Energy Policy Act policy of encouraging
development of geothermal resources and is economically beneficial to
the United States to the extent leases are issued competitively,
because competitive leases are issued with bonus bids and have higher
rental rates.
A number of commenters urged that proposed section 3203.13 be
revised to require more frequent lease sales. These commenters noted
that the statute requires that lease sales be held at minimum every 2
years and does not establish a cap that would prevent more frequent
leasing. Various reasons were cited in support of holding lease sales
more frequently, e.g.: Long delays in the leasing process would make
financing difficult or impossible and stunt development; The geothermal
production tax credit has only a 2-year window; Leasing only every 2
years would not accomplish the goals of the Energy Policy Act; and
Competitors could spend the time waiting for a lease sale proving up
the resource to know how to outbid the nominator. Some commenters
suggested that the regulations should require the BLM to hold quarterly
lease sales, as in the oil and gas program, in any state where there
are nominations pending, and require that the BLM process all lease
nominations within 6 months. One commenter suggested that geothermal
lease sales be held in conjunction with quarterly oil and gas lease
sales. A commenter also recommended that the BLM require quarterly
publication of the status of pending lease nominations and the reason
for further delay if the tract has not been put forward for leasing
after 6 months. One commenter suggested that the rule provide that 2
years is the maximum, but that the BLM will attempt to hold a lease
sale every 60 days.
We did not change the rule in response to these comments. As the
commenters noted, section 3203.13 provides the same time frame as the
statute at 30 U.S.C. 1003(b). As the commenters also acknowledged,
nothing in the statute or the regulations precludes more frequent lease
sales. The quarterly competitive sales for oil and gas are mandated by
statute. Congress made the decision not to impose a similar mandate for
geothermal leasing, and we decline to add such a mandate in these
regulations. We recognize that more frequent lease sales may benefit
geothermal development and we expect that BLM state offices will
schedule sales as frequently as feasible when lands are available for
leasing. The decision whether to hold geothermal lease sales in
conjunction with some oil and gas lease sales will be made on a state-
by-state basis. Regarding the comment that competitors could spend time
before a lease sale exploring the potential resource, we note that pre-
leasing exploration is available to the nominator as well as to
competitors.
Final sections 3203.14 and 3203.15 describe how the BLM will notify
the public of competitive lease sales, the types of information the BLM
will include in a notice of sale, and how the BLM will conduct the
sale. Unlike the previous regulations at subpart 3205, this final rule
does not restrict the competitive sale process to sealed bids, but is
flexible enough to allow other competitive sale formats, such as oral
auctions. We anticipate that most sales will be conducted through oral
auctions.
In order to protect the bidding process, we added at section
3203.15(c) a standard auction requirement that a bid may not be
withdrawn and that a bid constitutes a legally binding commitment. This
is current BLM practice both in the geothermal and oil and gas leasing
programs.
We received no comments on sections 3203.14 and 3203.15 and have
adopted them as proposed.
Final section 3203.17 provides information related to the payment
obligations of a successful bidder. Because the proposed competitive
sale process is no longer restricted to sealed bids, a bidder will not
have to submit any payments unless at the end of the sale it is the
high bidder. This section provides that a successful bidder must pay
twenty percent of the bid, the total first year's rental, and the
processing fee by close of business on the day of the sale or such
other time as the BLM may specify. While the general expectation is
that these payments will be made on the day of the sale, the section
allows the BLM to specify another time for payments to be made if
circumstances so require, such as, for example, the following business
day. This section also adds personal checks to the list of financial
instruments that may be used to make it easier for the successful
bidder to make payments immediately after the sale. Final section
3203.17(c), like previous section 3205.16, requires that the balance of
the bid be submitted within 15 calendar days after the sale.
Two commenters objected that same day payment is not practical, nor
possible in some cases, since the amount of the successful bid is not
known prior to auction. One suggested that provision should be made for
a 5-business-day settlement period for bids.
We did not change the rule in response to these comments. The
regulations at section 3203.17 provide that payment may be made by
personal check, as well as other specified means, and that the BLM may
specify another time for payment. We believe that these provisions
provide ample opportunity for a lessee to make payment as directed
under the regulation. We note that the regulations for oil and gas
lease sales require payment by close of business on the day of sale,
and experience shows that companies are able to comply with this
provision.
Final section 3203.18 cross-references subpart 3204, which
addresses noncompetitive leasing other than direct use leases.
Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases
Final subpart 3204 describes when and how the BLM will issue
noncompetitive geothermal leases. The most common method of obtaining
noncompetitive leases under this subpart will be applying for parcels
of land that did not receive bids in a competitive sale. This subpart
does not address noncompetitive leases for lands
[[Page 24364]]
available exclusively for direct use of geothermal resources, which are
covered in final subpart 3205.
Final section 3204.5 lists the four types of lands available for
noncompetitive leasing: (1) Parcels of land that did not receive bids
in a competitive sale; (2) Lands available exclusively for direct use,
addressed at final subpart 3205; (3) Lands subject to mining claims,
addressed at final section 3204.12; and (4) Lands for which a lease
application was pending on August 8, 2005, if the applicant so chooses.
One commenter suggested that oil and gas leases be allowed to
include the rights to geothermal resources underlying their oil and gas
leases, at least for a grandfathered period. The commenter expressed
concern that if the geothermal rights were put up for competitive bid,
someone else could acquire them and drill geothermal wells among the
oil and gas wells, interfering with oil and gas production.
Oil and gas leases do not include the right to develop the
geothermal resources; they are authorized under separate statutes and
processes and a separate geothermal lease would have to be obtained.
The commenter may have meant to suggest that oil and gas lessees be
allowed to acquire geothermal leases for underlying resources on a
noncompetitive basis. However, the statute allows noncompetitive
leasing only in the four situations listed above. An oil and gas
operator could apply for a noncompetitive direct use lease for the
underlying geothermal resources, but if the BLM determined that there
was competitive interest in a direct use lease, or that the area was
appropriate for commercial generation of electricity from the
geothermal resources, it would hold a competitive lease sale. It is
thus possible that another entity could acquire a lease for the
geothermal resources underlying the oil and gas lease. It is possible
that lease stipulations could be inserted to avoid interference with a
senior oil and gas lease. The statute at 30 U.S.C. 1016 contains
requirements to avoid interference to protect both geothermal interests
and other uses.
Final section 3204.10 requires an applicant for a noncompetitive
lease to submit a processing fee and advance rent. The advance rent
will be refunded if the application is rejected or withdrawn. These
provisions are substantively the same as previous section 3204.12. We
received no comments on this section and have adopted it as proposed.
Final section 3204.11 explains the procedures for noncompetitive
leasing of lands for which no bid is received in a competitive lease
sale. This implements the statutory requirement at 30 U.S.C. 1003(c).
For efficiency of administration, in the first 30 days following the
competitive sale, applications will be accepted only for parcels as
configured in the sale notice. To provide equal opportunity during the
first 24 hours after the lease sale, all applications received for a
particular parcel on the first business day after the competitive sale
will be considered as simultaneously filed, and the BLM will select one
at random to receive a lease offer. A fair market value bid is not
required for a noncompetitive lease. It would be difficult for the BLM
to determine what an appropriate bid should be in a noncompetitive
situation; moreover, allowing leases to be obtained without a bid
should encourage additional geothermal exploration and development. We
received no comments on section 3204.11 and have adopted it as
proposed.
Final section 3204.12 implements the statutory provision at 30
U.S.C. 1003(b)(3) that allows a mining claimant with an approved plan
of operations to apply for a noncompetitive geothermal lease. One
commenter asked if a developer has a mining claim on acreage with an
approved plan of operations, whether there is the same required 2-year
waiting period following a competitive lease sale as lands that do not
have a mining claim.
We did not change the rule in response to this comment. Under final
section 3204.12, the 2-year noncompetitive window following a
competitive lease sale does not apply to a mining claimant with an
approved plan of operations. A mining claimant with an approved plan of
operations may file a noncompetitive lease application at any time up
to the point that the BLM has accepted a bid for a lease on those
lands.
Final section 3204.13 implements a portion of the statutory
provision at 30 U.S.C. 1003(d)(2) that allows lease applications
pending on August 8, 2005, to be processed under then-existing policies
and procedures unless the applicant elects for the lease to be subject
to the new leasing procedures. We received no comments on this section
and have adopted it as proposed.
Final section 3204.14 governs the amendment of noncompetitive lease
applications. It provides that an applicant may amend an application at
any time before the BLM issues a lease if the amended application meets
the requirements in this subpart and does not add lands not included in
the original application. To add lands, an applicant must file a new
application. (The withdrawal of lands from noncompetitive lease
applications is covered by final section 3204.15, discussed below.)
This is a change from the previous regulations, as discussed in the
preamble to the proposed rule, because the BLM decided that adding
lands to an application was equivalent to submitting a new application,
requiring a change in the priority date. We received no comments on
this section and have adopted it as proposed.
Final section 3204.15 provides that for 30 days after a competitive
lease sale, the BLM will not accept partial withdrawals of
noncompetitive lease applications, but will only accept withdrawals of
entire noncompetitive lease applications. As explained in the preamble
to the proposed rule, this is a change from previous section 3204.17,
and is parallel to the provision at final section 3204.11 restricting
noncompetitive applications for reconfigured lease parcels for the
first 30 days following a competitive sale. After 30 days, partial and
whole withdrawals will be allowed at any time before the BLM issues the
lease. Final section 3204.15 also provides (as did section 3204.17 of
the previous regulations) that if a partial withdrawal results in
failure to meet the minimum acreage required for a lease in final
section 3206.12, the BLM will reject the lease application.
Subpart 3205--Direct Use Leasing
The Energy Policy Act provides the authority for the BLM to issue
noncompetitive leases solely for the direct use of geothermal resources
under certain conditions. Subpart 3205 is a new subpart added to
describe these conditions and the process for applying for a direct use
lease. This subpart implements the provisions of 30 U.S.C. 1003(f).
``Direct use lease'' as used in this subpart has a specific meaning. As
discussed above in relation to section 3200.1 (Definitions), we have
revised the definition of ``direct use lease'' to clarify that such a
lease is issued noncompetitively. The new definition of ``direct use
lease'' is ``a lease issued noncompetitively in an area BLM designates
as available exclusively for direct use of geothermal resources,
without sale, for purposes other than commercial generation of
electricity.'' Competitive leases also allow direct use, but they are
not direct use leases. Unlike a direct use lease, under a competitive
lease that the BLM has decided to limit to exclusive direct use, the
resource may be sold (but it may not be used by the
[[Page 24365]]
operator or a purchaser for the commercial generation of electricity),
and the acreage restrictions will be those applicable to competitive
leases rather than direct use leases.
Thus, permitted uses under different types of leases are as
follows: (1) A lessee with a direct use lease may only use the resource
directly itself; (2) A lessee with a competitive lease that is
restricted to exclusive direct use may either use the resource directly
itself or sell the resource to a purchaser who will use it only for
direct use; (3) A lessee with either a competitive lease or a
noncompetitive lease obtained following a sale that is not restricted
to exclusive direct use may use the resource directly itself, sell the
resource for direct use, use the resource for the commercial generation
of electricity, or sell the resource for the commercial generation of
electricity.
Final section 3205.6 addresses the conditions under which the BLM
issues direct use leases. This section explains that a direct use lease
may be issued to the first qualified applicant only for lands that: (1)
Are open for geothermal leasing; (2) Are appropriate for exclusive
direct use, without sale, for purposes other than commercial generation
of electricity; (3) Do not include more acreage than reasonably
necessary for the proposed use; (4) Have been the subject of a
published notice that did not result in a nomination; and (5) Are of no
competitive interest, as determined by the BLM. The BLM will make the
determination of whether the lands are appropriate for a direct use
lease on a case-by-case basis at the time of application. The advantage
of a direct use lease is that it may be issued noncompetitively to the
first qualified applicant and may allow additional lands to be made
available for geothermal leasing that would not be available, for
environmental or other reasons, if the geothermal resource could be
used for the commercial generation of electricity.
We revised the title of section 3205.6 from that in the proposed
rule, to read ``When may BLM issue a direct use lease to an
applicant?'', instead of ``When will'', to reflect the statutory
language and the language of the regulatory text. We also added a
paragraph (b) to the section to clarify that if the BLM determines that
land for which an applicant has applied under this subpart is open for
geothermal leasing and is appropriate only for exclusive direct use
operations (see definition of ``direct use''), but determines that
there is competitive interest in the resource, it will include the land
in a competitive lease sale with lease stipulations limiting operations
to exclusive direct use.
Numerous comments were received opposing direct use leasing. One
commenter predicted that direct use leasing could cause ``major
headaches and legal entanglements down the road'' because improved
technology or discovery of high-temperature resources would cause a
direct use lessee to wish to produce electricity from the lease for
sale offsite. The commenter suggested that because the statute permits,
but does not require, direct use leasing, the BLM should ``just say
no'' to such leasing. Another commenter agreed, asking what the BLM
would do if a direct use lessee wanted to generate electricity,
hypothesizing that if a direct use lessee found the resource was
electrical grade, others would know and would want to file a nomination
for a lease for electrical generation on the lease which the lessee had
spent a great deal of money to obtain. The commenter also asked what
the BLM would do if a lessee were generating electricity and wanted to
drill wells for a greenhouse or other direct use.
Congress provided a detailed process for the Secretary to allow
limited noncompetitive direct use leasing in certain areas. We have
interpreted the statutory provisions to allow for limited direct use
leasing on certain lands which: (1) Would otherwise not be open to
geothermal development at all due to potential impacts to other
resource values; or (2) The BLM determines do not have potential for
commercial electrical generation. We agree that it is possible that
improved exploration, technology, or energy economics could cause a
direct use lease to have the potential for commercial generation of
electricity. However, the statute is clear that Congress intended that
leases permitting commercial generation of electricity are to be
offered through competitive lease sales. We would therefore not allow
commercial electrical generation on a direct use lease. If a direct use
lessee found an electrical grade resource, it would continue to have
the right to develop the resource for direct use for the duration of
its lease. As was pointed out at the public meeting in Reno, nothing
prevents a lessee with an unrestricted competitive lease from using the
resource for direct use as well as for electrical generation. We
envision direct use leases as providing a streamlined, simpler
noncompetitive process for development of geothermal areas that would
otherwise not be developed.
One commenter expressed concern regarding the administration of
units that contain both regular and direct use leases.
The BLM, in determining what areas are appropriate for direct use
leases, will make every effort to avoid issuing direct use leases in
areas with electrical generation potential. We would avoid including a
direct use lease in a unit with leases that generate commercial
electricity, because a direct use lease does not convey the rights to
develop the resource commercially. It is possible that a unit could be
formed entirely of direct use leases.
One commenter believed there were two problems that direct use
leasing and a direct use fee schedule were designed to address, and
that both could have been resolved without direct use leasing. First,
the commenter suggested that direct use leasing would not solve the
problem of undesirable features being built (i.e., power plants and
transmission lines), because direct use itself could involve
undesirable features (e.g., a direct use meat packing plant with
feedlots, holding pens, and traffic). Second, the commenter suggested
that the perceived problem of an overly-burdensome royalty rate for
direct use under the previous system was created by the institution of
all-competitive leasing, and could have been solved by retaining the
prior leasing system and providing for a fee on all direct use and a
royalty on power generation, keeping noncompetitive rentals at $1 per
acre.
Regarding the second part of this comment, it appears that the
commenter may be confused regarding when the direct use fee schedule
applies. In fact, as the commenter suggested was appropriate, the fee
schedule applies to all direct use of the resource regardless of the
type of lease. We also note that the rental for noncompetitive leases
under these new regulations remains at $1 per acre for the first 10
years. The first part of the comment, and arguments that the new
competitive leasing system should be revised, should, as the commenter
recognized, be addressed by Congress.
We did not change the rule in response to these comments.
Final section 3205.7 addresses the statutory acreage restrictions
applicable to a direct use lease, which must not cover more than the
quantity of acreage reasonably necessary for the proposed use, and in
no case may exceed 5,120 acres, except in the case of an irregular
subdivision. We received no comments on this section and have adopted
it as proposed.
Final section 3205.10 explains the procedures for applying for a
direct use lease and the types of information to be submitted with an
application. The
[[Page 24366]]
information that is submitted is used by the BLM to determine if the
requested acreage is necessary for the intended operation as described
in section 3205.7. This section would also require the submission of a
nonrefundable processing fee for noncompetitive lease applications, as
required by section 3204.12 of the current regulations.
One commenter stated that newcomers to the industry may not
understand that, under section 3205.10, a direct use lessee is
permitted to produce electricity on the lease, but only to serve the
load of the direct use facility, and suggested that this should be
spelled out.
To clarify the rule in response to this comment, we revised the
last sentence of section 3205.10(a) to utilize the defined phrase
``commercial generation of electricity,'' instead of the proposed
language ``to commercially generate electricity.'' The sentence now
reads: ``You may not sell the geothermal resource and you may not use
it for the commercial generation of electricity.'' The definition of
``commercial generation of electricity'' is ``generation of electricity
that is sold or is subject to sale, including the electricity or energy
that is required to convert geothermal energy into electrical energy
for sale.'' Electricity that is produced on a direct use lease only to
serve the load of the direct use facility does not fall within this
definition and, as the commenter correctly pointed out, such use is
permitted.
A commenter stated that precluding the sale of the geothermal
resource from a direct use lease seems counterproductive, because a
purchaser might also use the resource for direct use and not for the
commercial generation of electricity. The commenter asked whether, for
example, a lessee could produce the resource and sell it to a direct
use or power generation facility if it served only those facilities and
was not sold into the power grid, or whether a lessee could use the
resource directly itself, then sell the effluent to a third party for
use in an adjacent district heating system not owned by the production
lessee. The answer to these questions is no; a direct use lessee may
not sell the resource even if it would not be used for commercial
generation of electricity after sale. The BLM is constrained in
drafting its regulations by the language of the statute, which provides
that direct use leasing must be ``exclusively for direct use of
geothermal resources, without sale for purposes other than commercial
generation of electricity * * *.'' 30 U.S.C. 1003(f). Please note the
use of the phrase ``without sale'' in the statutory language. The BLM
does not have discretion to allow sale of the resource by a direct use
lessee. A potential lessee who is interested in selling the resource
for any purpose should nominate the lands for a competitive lease sale.
We did not change the rule in response to this comment.
One commenter was concerned that a direct use lessee would be
prohibited from selling the business or property that uses the resource
that is produced or producible from the lease, or would be prohibited
from transferring the lease and the resource producible therefrom.
A direct use lessee may assign (transfer) the lease. However, the
lease and the business to which it supplies the geothermal resource
must be transferred together to the same entity. This is because the
statute prohibits sale of the resource from a direct use lease. We did
not change the rule in response to this comment.
One commenter expressed concern that information required by
section 3205.10(b) to apply for a direct use lease would not be
available until after the lease was issued and the lessee could drill
wells. The BLM disagrees. Because the statute limits a direct use
geothermal lease to the quantity of acreage reasonably necessary for
the proposed use, the BLM must obtain the information necessary to make
this determination in advance of lease issuance. The BLM expects that
the applicant will be able to explain the nature and scope of the
intended use, which is what this section requires. The language of the
regulation recognizes that the information provided is not necessarily
complete or final, but will be based on anticipated production and
development. We did not change the rule in response to this comment.
Final section 3205.12 addresses direct use lease applications for
lands managed by an agency other than the BLM. The BLM will forward a
copy of such an application to the other agency. If that agency
consents to leasing and recommends that the lands are appropriate for a
direct use lease, the BLM will consider that consent and recommendation
in determining whether to issue the lease. This section requires that
the BLM obtain the consent of the surface management agency before
issuing a direct use lease. We received no comments on this section and
have adopted it as proposed.
Final sections 3205.13 and 3205.14 allow an applicant for a direct
use lease to withdraw its application at any time or amend its
application, without adding new lands, prior to lease issuance. To add
new lands, an applicant must file a new application (see discussion of
final section 3204.14, above). We received no comments on these
sections and have adopted them as proposed.
Final section 3205.15 discusses how the BLM will inform an
applicant of its decision to approve or deny a direct use lease
application. We received no comments on this section and have adopted
it as proposed.
Subpart 3206--Lease Issuance
Final subpart 3206 addresses lease issuance in general.
Final section 3206.10 is nearly identical to previous section
3206.10, with the addition of a provision notifying applicants that all
payments must be made before the BLM will issue a lease. This addition
reflects current BLM practice. We received no comments on this section
and have adopted it as proposed.
Final section 3206.11 discusses what the BLM must do before issuing
a lease. The section is unchanged from the previous regulations except
for changing the words ``will not significantly impact'' at the
beginning of paragraph (b), to ``will not have a significant adverse
impact on,'' which more closely tracks the language of 30 U.S.C.
1026(c).
One commenter voiced a concern regarding safeguarding thermal
features of national parks.
Both the Geothermal Steam Act and the regulations already provide
safeguards for thermal features of national parks. Final section
3206.11(b), in accordance with 30 U.S.C. 1026(a), provides that before
issuing a lease, the BLM must determine that lease development will not
have a significant adverse impact on any significant thermal feature of
National Park System units. Moreover, the Geothermal Steam Act at 30
U.S.C. 1026(b) provides that the Secretary must maintain a monitoring
program for significant thermal features within units of the National
Park System. We did not change the rule in response to this comment.
Final section 3206.12 addresses minimum and maximum lease sizes,
which were addressed in the previous regulations at section 3204.14.
The maximum lease size increased from 2,560 acres to 5,120 acres, as
provided at 30 U.S.C. 1006. We received no comments on this section and
have adopted it as proposed.
Final section 3206.13 addresses the maximum acreage that one lessee
may hold, which was addressed in the previous regulations at section
3206.12. This section is identical to the first sentence of previous
section 3206.12
[[Page 24367]]
and implements 30 U.S.C. 1006, which sets the limit at 51,200 acres in
any one State. The remainder of section 3206.12 of the previous
regulations was deleted because the Energy Policy Act amendments
deleted those provisions in the statute. We received no comments on
this section and have adopted it as proposed.
Final section 3206.14 explains how the BLM computes acreage
holdings. This section is identical to previous section 3206.13, except
for minor editorial changes. We received no comments on this section
and have adopted it as proposed.
Final section 3206.15, explaining how the BLM will charge acreage
holdings if the United States owns only a fractional interest in the
geothermal resources, is identical to previous section 3206.14, except
for minor editorial changes. We received no comments on this section
and have adopted it as proposed.
Final section 3206.16 explains that acreage is not chargeable
against the acreage limitations if it is included in any approved unit
agreement or development or drilling contract. These exclusions
implement 30 U.S.C. 1017(d) and (g)(2) and were addressed at section
3206.15 in the previous regulations. The reference in the previous
regulations to cooperative agreements was deleted because they are no
longer mentioned in this part. We received no comments on this section
and have adopted it as proposed.
Final section 3206.17 addresses what the BLM does if a lessee's
holdings exceed the maximum acreage limits set in final section
3206.13. This section is identical to section 3206.16 of the previous
regulations. We received no comments on this section and have adopted
it as proposed.
Final section 3206.18 addresses when the BLM issues a lease. It is
identical to section 3206.18 of the previous regulations, except for a
minor editorial change. We received no comments on this section and
have adopted it as proposed.
Subpart 3207--Lease Terms and Extensions
Final subpart 3207 explains the new system of lease terms and
extensions provided at 30 U.S.C. 1005.
Final section 3207.5 summarizes the new lease terms (length of time
a lease is in effect) and lease term extensions, which include: (1) A
10-year primary term and two 5-year extensions of the primary term; (2)
A five-year drilling extension; (3) A production extension of up to 35
years; and (4) A renewal term of up to 55 years. We received no
comments on this section and have adopted it as proposed.
Final sections 3207.10, 3207.11, and 3207.12 address the primary
term of a lease and explain the requirements for obtaining and
continuing extensions of the primary term. As explained in the preamble
to the proposed rule (71 FR 41547), we interpret the statute as giving
the BLM authority to prescribe work requirements that must be completed
by the end of the 10th lease year, in accord with the statutory
language relating to work requirements and in order to give effect to
the statutory 10-year primary term, and to provide a basis for deciding
whether the BLM will grant the initial 5-year extension. We note that
work requirements relating to the initial and additional extensions of
the primary term are addressed in different paragraphs of 30 U.S.C.
1005. Paragraph (a)(2) of section 1005 mandates that for each year of
an initial 5-year extension lessees must satisfy work requirements
under paragraph (b) or make payments in lieu of minimum work
requirements under paragraph (c). Paragraph (a)(3) provides that a
lessee must be granted an additional 5-year extension if it satisfied
the requirements of the initial extension; paragraph (b) then mandates
minimum work requirements for each year after the 10th year of the
lease.
Final section 3207.11 establishes work requirements that a lessee
must meet within the 10-year primary term for a lessee to be eligible
for the initial 5-year extension of the primary term. The BLM
formulated its list of potential types of work that could be performed
to meet the work requirements based on the statutory provision, at 30
U.S.C. 1005(b)(2). The provisions require that the work should
establish a geothermal potential or, if that potential has been
established, should confirm the existence of producible geothermal
resources. The amount of work that must be performed is quantified as a
minimum dollar expenditure per acre, as it was in the previous
regulations (see previous sections 3210.13 (diligent exploration
requirements) and 3208.14 (significant expenditures)).
For the work requirements that must be completed by the end of the
10th year of the lease, final section 3207.11(a) requires a $40 per
acre expenditure over the 10-year period of the primary term of the
lease, which is the same expenditure that was required at section
3210.13 of the previous regulations for diligent exploration during the
primary term. For work requirements for each year of the initial 5-year
extension, final section 3207.12(a) requires an annual dollar
expenditure of $15 per acre, which is the same as was required at
section 3208.14 of the previous regulations for significant
expenditures during a first lease extension. For work requirements for
years 16 through 19 of the additional 5-year extension, final section
3207.12(c) requires an annual dollar expenditure of $25 per acre. No
work is required for the 20th year because the lessee must obtain
either a drilling extension (section 3207.14) or a production extension
(section 3207.15) to hold the lease beyond the 20th year. We determined
that the dollar expenditure for work requirements should increase
enough during an additional extension to motivate a lessee to put a
lease into production if it is not already producing in commercial
quantities by the end of the 15th year. As the annual expenditure
requirement increases $11 per acre after the 10th lease year (from $40
over a 10-year period, or an average of $4 per acre per year, to $15
per acre per year), we require in final section 3207.12(c) that the
expenditure increase by a nearly equivalent amount--$10 per acre--after
the 15th lease year (from $15 to $25 per acre per year). We believe
this level of increase serves the purpose of encouraging diligent
development of the resource.
One commenter asked whether a lessee's own work on a lease would
count toward satisfaction of the work requirement if the lessee was a
geologist qualified to do valuable work on a lease.
As was true under the previous regulations, a lessee's work on a
lease may count toward satisfaction of the work requirement as long as
it is engaged in activities that establish a geothermal potential or
confirm the existence of producible geothermal resources. A lessee's
geologic work on a lease may count if it results in original,
independent data, for example, mapping or preparing geological cross-
sections of the lease area. The dollar expenditure under such
circumstances would be calculated by the equivalent cost of paying a
professional geologist for similar maps or cross-sections.
Final sections 3207.11(b) and 3207.12(d) allow a lessee to make
minimum annual payments instead of performing the work requirements, as
provided in the statute at 30 U.S.C. 1005(c). These sections provide
that a lessee may make a payment equivalent to the required work
expenditure, such that the total of the payment and the value of the
work performed equals the dollar value of the expenditure that would
otherwise be required. As provided in the statute, these sections also
allow the BLM to limit the number of years that it accepts such
payments, if it determines that payments in lieu of
[[Page 24368]]
work requirements will impair achievement of diligent development of
the geothermal resource. We concluded that such impairment
determinations are more appropriately made on a case-by-case basis and
therefore we did not include in the rule a specific limit on the number
of years that the BLM will accept such payments.
The final rule takes a different approach than the previous rule
regarding the amount of payments that are allowable in lieu of work
performance, in that it does not allow payments in a lesser amount than
the value of the required work. We believe this change furthers the
statutory purpose of encouraging the development of geothermal
resources.
The final rule also includes an automatic inflation adjustment for
the minimum work requirements and for monetary payments in lieu of the
work performance. Final sections 3207.11(f) and 3207.12(i) provide that
the dollar amount of the requirements will be adjusted automatically
every three calendar years based on the Implicit Price Deflator for
Gross Domestic Product that is published annually by the U.S.
Department of Commerce. Because the adjustments will simply be based on
a mathematical formula, the adjustments will be made in succeeding
final rules without notice and comment, which is the procedure that the
BLM used in its cost recovery rule published on October 7, 2005 (70 FR
58872).
One commenter objected to the inclusion of an inflation adjustment
for these payments, suggesting that such an adjustment is not
authorized by law. We disagree with the comment. The statute authorizes
the Secretary of the Interior to set reasonable work requirements
(``The Secretary shall issue regulations prescribing minimum work
requirements for geothermal leases * * *.'') and in lieu payments (``In
lieu of the minimum work requirements * * * the Secretary shall by
regulation establish minimum annual payments * * *'') 30 U.S.C.
1005(b)(2) and (c). It is within the Secretary's discretion to choose a
reasonable approach to setting such requirements and payments. Nothing
in the statute precludes the inclusion of an inflation adjustment,
which is a widely-used and generally accepted approach. We did not
change the rule in response to this comment.
Final sections 3207.11(b) and 3207.12(d) provide that a lessee is
exempt from work requirements if it submits documentation to the BLM
showing that it has produced or utilized geothermal resources in
commercial quantities. This implements 30 U.S.C. 1005(f), which
provides that minimum work requirements do not apply after the date on
which the geothermal resource is utilized in commercial quantities.
Final sections 3207.11(c) and (e) and 3207.12(f) and (g) provide
timeframes for a lessee to submit information to the BLM showing that
it has met the work requirements or paid or produced in lieu thereof,
explain the type of information that must be submitted, and explain the
BLM's approval process.
Final section 3207.12(e) provides that if a lessee expends an
amount greater than the dollar expenditure required in that year on
suitable development activities, the lessee may apply any excess
payment to any subsequent year within that same 5-year extension
period. This is similar to section 3208.14(a) of the previous
regulations.
Except for the comment regarding inclusion of an inflation
adjustment discussed above, we received no comments on sections
3207.10, 3207.11, and 3207.12 and have adopted them as proposed.
Final section 3207.13 exempts from the work requirements a lessee
whose lease overlies a mining claim when: (1) The mining claim has a
plan of operations approved by the appropriate Federal land management
agency; and (2) Development of the geothermal resource would interfere
with the mining operations. This implements 30 U.S.C. 1005(e). We
received no comments on this section and have adopted it as proposed.
Final sections 3207.14 and 3207.15 implement the 5-year drilling
and 35-year production extensions provided for in the statute at 30
U.S.C. 1005(g). As explained in the preamble to the proposed rule (71
FR 41548), we conclude that the language in the statute supports
applying the 5-year drilling and 35-year production extensions to
individual leases, as well as to leases under cooperative or unit
agreements. We received no comments on these sections and have adopted
them as proposed.
Final section 3207.14 addresses qualifications for a drilling
extension. As explained in the preamble to the proposed rule (71 FR
41548-41549), a lessee who submits information showing that it has met
the applicable requirements (work activities or payment or production
in lieu thereof) will continue in the primary term through the 20th
year. Because the statute provides for a drilling extension only if a
lessee is engaged in qualifying drilling operations at the time the
primary term ends (see 30 U.S.C. 1005(g)), final section 3207.14 allows
the drilling extension only if: (1) A lessee was drilling over the end
of the 20th lease year (when the primary term would end due to lease
expiration); or (2) A lessee had failed to submit information showing
that it had met the requirements for an extension of the primary term
and was drilling over the end of a year subsequent to the 10th year (in
which case the primary term would terminate due to a failure to comply
with requirements). The section further specifies that to qualify for
the drilling extension, the lessee must be drilling a well for the
purposes of commercial production to a target that the BLM determines
is adequate, based on the local geology and type of proposed
development. The lease will expire if, at the end of the 5-year
drilling extension, the lessee does not qualify for a production
extension (i.e., if the lessee is not producing or utilizing the
geothermal resource in commercial quantities--see discussion of final
section 3207.15, below). We received no comments on this section and
have adopted it as proposed.
Final section 3207.15 provides a production extension of up to 35
years for a lease that is: (1) Actually producing geothermal resources
in commercial quantities; or (2) Has a well capable of producing
geothermal resources in commercial quantities and the lessee is making
diligent efforts to utilize the resource. This reflects the definition
at 30 U.S.C. 1005(h) of ``produced or utilized in commercial
quantities,'' which is also defined at section 3200.1. The section also
specifies the types of information a lessee must provide to the BLM for
the BLM to determine whether to grant a production extension. A lessee
with a BLM-approved utilization plan allowing for seasonal operation
would be eligible for the production extension as long as it was
producing or utilizing the geothermal resource in commercial quantities
during the periods that the utilization plan provided for operations.
We received no comments on this section. In the final rule we added a
cross-reference to section 3212.15 to make it clear that a lease will
not terminate if it satisfies the conditions in that section.
Final section 3207.16 provides for a preferential right of renewal
of a lease for a second term that is equal to the length of the primary
term including the initial and additional extensions (a total of 20
years) plus the length of the production extension (up to 35 years) for
a total renewal period of up to 55 years. A renewal could be granted
under such terms and conditions as the BLM deems appropriate, if at the
end of the production extension, the lessee is
[[Page 24369]]
producing or utilizing geothermal resources in commercial quantities
and the lands are not needed for any other purpose. This provision
implements 30 U.S.C. 1005(g). This section also specifies that the
renewal term continues only so long as the lessee is producing or
utilizing geothermal resources in commercial quantities. The term
``produced or utilized in commercial quantities'' is defined in
proposed section 3200.1. We received no comments on this section and
have adopted it as proposed.
Final section 3207.17 provides that leases committed to a unit
agreement that would expire before the unit term would expire may be
extended to match the term of the unit if unit development has been
diligently pursued. Paragraph (a) of this section is virtually
identical to the previous regulation at section 3208.10(a)(4), with a
slight change in wording to remove any implication that the holder of
the expiring lease must be the one to have diligently pursued unit
development. Final sections 3207.17 (b) and (c) establish procedures
for these circumstances. Under final section 3207.17 (b), to extend the
term of a lease committed to a unit, the unit operator must send to the
BLM a request for lease extension at least 60 days before the lease
expires showing that unit development has been diligently pursued. In
the final rule we amended the paragraph (b) to make it clear that BLM
may require the operator to submit additional information prior to
approving the application. Final section 3207.17 (c) provides that
within 30 days after receiving your complete extension request, the BLM
will notify the unit operator whether it approves the request. Under
final paragraph (c), the 30 days will begin running after BLM has
received all information necessary to act on the application.
Final section 3207.18 provides that a lease that is eliminated from
a unit is eligible for an extension if it meets the requirements for
such extensions. We received no comments on this section. In the final
rule we removed the references to drilling and production extensions
because lands eliminated from a unit may also be eligible for an
initial or additional extension of the primary term.
Previous Subpart 3208--Extending the Primary Lease Term
Previous subpart 3208 is removed because under this final rule the
subject of extensions of lease terms is addressed in subpart 3207 for
leases issued: (1) After August 8, 2005 (other than for leases issued
in response to applications that were pending on that date for which no
election is made under section 3200.8(b)(1)); and (2) Before August 8,
2005, for which an election is made under section 3200.7(a)(2).
Although removed from the CFR, the substance of previous subpart 3208
(43 CFR subpart 3208 (2004)) will continue to have vitality for leases
issued before August 8, 2005, for which no election is made under
section 3200.7(a)(2), and for leases issued in response to applications
pending on that date for which no election is made under section
3200.8(b)(1). As discussed in an earlier section of this preamble,
leases in these two categories continue to operate under certain
provisions of the rules in effect on August 8, 2005, unless they elect
otherwise.
We received no comments on the removal of this subpart.
Previous Subpart 3209--Conversion of Lease Producing Byproducts
Previous subpart 3209 is removed because lease conversions that
subpart covered are no longer allowable under the Energy Policy Act. We
received no comments on the removal of this subpart.
Subpart 3210--Additional Lease Information
Final sections 3210.10 and 3210.11 on lease segregation remain
substantively unchanged from the previous sections. We received no
comments on these sections and have adopted them as proposed.
Final section 3210.12 references new lease size limits. In other
respects, it is substantively unchanged from the previous section. The
preamble to the proposed rule mistakenly implied that the processing
fee for lease consolidations was new in this rule. In fact, that fee
had been previously added by the minerals cost recovery rule (see 70 FR
58854 (October 7, 2005)). We received no comments on this section and
have adopted it as proposed.
This final rule removes previous sections 3210.13, 3210.14,
3210.15, and 3210.16, all of which pertained to the previous diligent
exploration requirements. Work requirements are addressed in the final
rule in subpart 3207 for leases issued: (1) After August 8, 2005 (other
than for leases issued in response to applications that were pending on
that date for which no election is made under section 3200.8(b)(1));
and (2) Before August 8, 2005, for which an election is made under
section 3200.7(a)(2). Despite the removal of these sections, the
substantive terms of the cited sections (in the 2004 edition of the
CFR) continue to apply to leases in effect before August 8, 2005, and
leases issued on or after August 8, 2005, in response to applications
pending on that date, unless the lessees elect under section
3200.7(a)(2) or section 3200.8(b)(1) to be subject to the regulatory
requirements of this final rule. We received no comments on the removal
of these sections.
Final section 3210.13 on leasing or locating minerals on a
geothermal lease remains substantively unchanged from previous section
3210.17. We received no comments on this section and have adopted it as
proposed.
Final section 3210.14, which provides that the BLM may readjust the
terms and conditions of a lease, replaces previous sections 3210.18,
3210.19, and 3210.20 that related to the same topic. It implements 30
U.S.C. 1007, as revised.
One commenter objected to allowing the BLM to readjust the terms
and conditions of a lease. The commenter stated that allowing such
changes after the lease is issued creates uncertainty for the developer
and could create financing issues.
We did not change the rule in response to this comment. As
discussed below, these provisions are not substantively changed from
the previous regulations (see previous sections 3210.18 and 3210.20).
The statutory provision providing that the Secretary may readjust lease
terms and conditions at not less than 10-year intervals and may
readjust rentals and royalties at not less than 20-year intervals
beginning 35 years after production (30 U.S.C. 1007) was not changed by
the Energy Policy Act amendments, except for the removal of the 22.5
percent royalty cap previously included in 30 U.S.C. 1007(b). The final
rule implements the new statutory provision.
Final section 3210.14(a) addresses readjustment of lease terms and
conditions other than rentals and royalties; it replaces previous
section 3210.18. With one exception, paragraph 3210.14(a) is
substantively unchanged from previous section 3210.18. Previous section
3210.18 provided that once the BLM and the other agency reached
agreement, the BLM would readjust the terms of the lease. It did not
state, as the statute requires at 30 U.S.C. 1007(c), that the other
agency must approve the readjustment. Final section 3210.14(a)(2)
clarifies that the other agency must approve the proposed readjustment.
Final section 3210.14(b) addresses readjustment of rentals and
royalties; it replaces previous section 3210.20(a). The previous 22.5
percent royalty cap for readjusted leases was removed from
[[Page 24370]]
the rules because that cap is no longer in the statute.
Final sections 3210.14(c), (d), and (e) implement the procedures of
30 U.S.C. 1007(b), and are somewhat different than the procedures in
previous sections 3210.19 and 3210.20. Under previous sections
3210.19(a) and 3210.20(b), the BLM notified lessees in writing of
proposed readjustments and provided the lessee 30 days to object in
writing to the new terms. The previous rules provided further that if a
lessee: (1) Did not object, the proposed new terms would become part of
the existing lease; or (2) Did object, the BLM would issue an
appealable final decision on the new terms and conditions. The previous
rules, however, did not expressly mention certain concepts contained in
the statute that are described below.
Under final sections 3210.14(c) and (d), the BLM will give a lessee
a written proposal to readjust the rentals, royalties, or other terms
and conditions of its lease. The lessee will have 30 days after
receiving the proposal to file with the BLM an objection in writing to
the proposed new terms and conditions. If the lessee does not object in
writing or relinquish its lease, it will conclusively be deemed to have
agreed to the proposed new terms and conditions. This concept, implied
but not expressly stated in the previous rules, is taken directly from
the statute. The BLM will then issue a written decision under final
section 3210.14(d), setting the date that the new terms and conditions
become effective as part of the lease. This decision will be in full
force and effect under its own terms, and the lessee is not authorized
to appeal the decision to the Department's Office of Hearings and
Appeals.
We made a minor revision to proposed section 3210.14(c), changing
the word ``adjust'' to ``readjust,'' to be consistent with language of
the statute at 30 U.S.C. 1007 and the language of the other paragraphs
of section 3210.14.
Final section 3210.14(e) establishes procedures for the situations
where a lessee files a timely objection to the proposed readjustment,
and is intended to implement a portion of 30 U.S.C. 1007(b) that was
not addressed in previous regulations.
We revised the language of proposed section 3210.14(e)(1) in this
final rule to correct an error in the proposed rule. The section as
proposed referred only to ``readjusted rental and royalty terms'':
If you file a timely objection in writing, BLM may issue a
written decision making the readjusted rental and royalty terms
effective no sooner than 90 days after we receive your objections,
unless we reach an agreement with you as to the readjusted terms of
your lease that makes such terms effective sooner.
However, the intent, as was clear from proposed paragraphs (c),
(d), and (e) taken as a whole, was to refer to not just readjusted
rental and royalty terms, but to all readjusted terms and conditions.
Therefore, in this final rule we substituted the words ``readjusted
terms and conditions'' for ``readjusted rental and royalty terms,'' and
for clarity also revised the end of the sentence to refer to
``readjusted terms and conditions'' rather than the shorthand
``readjusted terms.'' Final section 3210.14(e)(1) thus reads:
If you file a timely objection in writing, BLM may issue a
written decision making the readjusted terms and conditions
effective no sooner than 90 days after we receive your objections,
unless we reach an agreement with you as to the readjusted terms and
conditions of your lease that makes them effective sooner.
Under final section 3210.14(e)(2), if the BLM does not reach an
agreement with the lessee by 60 days after receiving the lessee's
objections, then either the lessee or the BLM may terminate the lease,
upon giving the other party 30 days' notice in writing. This provision
is contained in 30 U.S.C. 1007(b), but did not appear in the previous
regulations. The final rule clarifies that a lease termination under
paragraph (e)(2) does not affect a lessee's obligations that accrued
under the lease when it was in effect, including those specified in
section 3200.4.
Unlike a BLM decision under final section 3210.14(d), a lessee may
appeal a BLM readjustment decision under final section 3210.14(e)(1).
Final section 3210.15 addresses such appeals.
For consistency, we revised the language of proposed section
3210.15, which referred to ``lease terms and conditions, or rental or
royalty rate'' to use the same phrase used in final section 3210.14(c):
``rentals, royalties, or other terms and conditions of your lease.''
Final section 3210.15 provides that if a lessee appeals the BLM's
decision under section 3210.14(e)(2) to readjust rentals, royalties, or
other terms and conditions of its lease, the decision will be effective
during the appeal. If the lessee wins its appeal and the BLM must
change its decision, the lessee will receive a refund or credit for any
overpaid rents or royalties.
In summary, the BLM will provide a lessee 30 days to object to a
proposed readjustment decision. If the lessee objects, the BLM may
issue a written decision making the readjusted terms and conditions
effective no sooner than 90 days after receiving the objection. A
lessee will have 30 days to appeal that decision under Office of
Hearings and Appeals regulations. In addition to the appeal process,
the BLM and the lessee can attempt to negotiate an agreement within 60
days after the BLM receives the objection. If an agreement is reached,
the appeal will be withdrawn. If an agreement is not reached, either
the lessee or the BLM may terminate the lease on 30 days' notice in
writing, even if an appeal is pending.
We revised sections 3210.14 and 3210.15 as discussed above to
correct an error in the proposed rule and to make the wording
consistent.
Final sections 3210.16 and 3210.17, relating to drainage of
geothermal resources, are substantively unchanged from previous
sections 3210.22 and 3210.23. We received no comments on these sections
and have adopted them as proposed.
Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees, and
Royalties
Final subpart 3211 incorporates changes made by the Energy Policy
Act to lease rental rates, royalty rates, and minimum royalty
requirements.
Final section 3211.10 addresses processing and filing fees.
Paragraph (b) references existing 43 CFR 3000.12 for the amount of the
fees. The BLM expects to update section 3000.12 from time to time to
reflect actual costs associated with these activities. We received no
comments on this section and have adopted it as proposed.
Final section 3211.11 establishes rental rates for geothermal
leases. The new lease rental rates are taken directly from 30 U.S.C.
1004(a)(3)(A) and (B). The Energy Policy Act significantly changed
rental rates from those in the previous regulations. The rental for new
noncompetitive leases (that is, leases issued on or after August 8,
2005, other than leases issued in response to applications that were
pending on that date for which no election is made under section
3200.8(b)(1)) remains at $1 per acre per year for the first 10 years;
the rental for new competitive leases is $2 per acre the first year and
increases from $2 per acre per year to $3 per acre per year from years
2 through 10. Starting with the eleventh year, the rental rate for all
new leases increases to $5 per acre per year. Final section 3211.11(e)
addresses fractional mineral interests in the same way as did previous
section 3211.13.
Although we received no comments on proposed section 3211.11, we
restructured it and added language to
[[Page 24371]]
clarify that for leases issued before August 8, 2005, for which no
election is made under section 3200.7(a)(2), and for leases issued in
response to applications pending on August 8, 2005, for which no
election is made under section 3200.8(b)(1), the rental rate is the
rate prescribed in the regulations in effect on August 8, 2005 (43 CFR
3211.10 (2004)). This is not a substantive change from the proposal,
but is added as a convenience for persons trying to understand the
rental structure for existing and new leases.
Final section 3211.12 is virtually the same as previous section
3211.12. The Energy Policy Act did not make any changes regarding to
whom the rent is paid for the first year and subsequent years. We
received no comments on this section and have adopted it as proposed.
Final section 3211.13 addresses when rental payments are due and
replaces previous section 3211.11. The rule provides that rent is
always due in advance. The MMS must receive annual rental payments for
the upcoming year by the anniversary date of each lease year. If less
than a full year remains on a lease, a lessee must still pay a full
year's rent by the anniversary date of the lease. The payment of rent
in advance is required by 30 U.S.C. 1004(a)(3). As this was also
required in the original Geothermal Steam Act of 1970, there are no
substantial changes to this portion of the provision. The reference in
previous section 3211.11 to the automatic termination of leases by
operation of law is not included in the new section because the statute
has changed in this regard. Lease termination for non-payment of rental
is addressed in final section 3213.14 of this rule and is discussed
later in this preamble and in the preamble to the proposed rule at 71
FR 41557-41558.
One commenter requested a clarification of how rent will be
credited towards royalty, as provided in section 3211.15, in light of
the requirement of section 3211.13 that rent is due in advance. The
commenter is referred to the MMS rule at 43 CFR 218.303 for this
clarification. In addition to the explanation in the MMS rule text, the
preamble to the proposed MMS rule provided a thorough explanation of
the process, including examples (71 FR 41522). We did not change the
rule in response to this comment.
Final section 3211.14 addresses whether a lessee must always pay
rent on a lease. Although we received no comments on proposed section
3211.14, we restructured it and added language to clarify that only
leases issued on or after August 8, 2005 (other than leases issued in
response to applications that were pending on that date for which no
election is made under section 3200.8(b)(1)), and leases issued before
August 8, 2005, for which an election is made under section
3200.7(a)(2), will always pay rental. As explained in the preamble to
the proposed rule (71 FR 41550), the Energy Policy Act does not provide
for payment of royalties in lieu of rent, or for minimum royalties
during production. It provides that lessees will pay rental every year,
and allows a credit of rents against royalties, as provided in this
rule at section 3211.15.
The language we added to section 3211.14 explains that leases
issued before August 8, 2005, for which no election is made under
section 3200.7(a)(2), and leases issued in response to applications
pending on that date for which no election is made under section
3200.8(b)(1), continue to be subject to the rental and minimum royalty
provisions of the previous regulations (43 CFR subpart 3211 (2004)).
While final sections 3200.7(a) and 3200.8(a) already provide that such
leases are subject to the previous regulations in this regard, for
clarity we included specific information in subpart 3211 as well. The
previous regulations provided that the lessee pays rent until the lease
achieves production in commercial quantities, or until lands in the
lease are within the participating area of a unit agreement or
cooperative plan, at which time the lessee pays royalties for lands
within the participating area and rent for lands outside the
participating area (see 43 CFR 3211.14, 3211.15, and 3211.17 (2004)).
Final section 3211.15, together with applicable MMS regulations,
implement 30 U.S.C. 1004(e), which requires that the advance rental
payments on new leases be credited towards royalty due on production in
that lease year. The rule provides that a lessee may credit rental
towards royalty under the MMS proposed regulations at 30 CFR 218.303.
Under the statute the rental credit against royalty is allowed only for
rent paid before the first day of the year for which the rental is
owed. In other words, no credit is allowable for rent paid after the
lease anniversary date, even if the lease is not terminated. Thus,
although lessees are allowed to maintain their leases by paying rent
plus a late fee within 45 days of the lease anniversary date, they may
not credit such late rental payments against royalties.
Also, the Energy Policy Act does not provide for rental paid in
excess of royalty to be carried over from one lease year as a credit
against royalty for production in another year. Because rental is
always due on a lease, the rental payment effectively becomes the
equivalent of a minimum royalty payment that was required prior to the
Energy Policy Act.
Final section 3211.16 provides that rental paid cannot be credited
against fees owed for direct use of geothermal resources. This
provision also appears in the final MMS regulations at 30 CFR 218.304.
This section is based on the Energy Policy Act, which provides at 30
U.S.C. 1004(e) that annual rentals ``shall be credited to the amount of
royalty that is required to be paid under the lease for that year.''
Please note the use of the word ``royalty'' in this provision of the
statute.
Two commenters objected to the BLM's interpretation of 30 U.S.C.
1004(e) as providing for crediting rentals only against royalties and
not against direct use fees. These commenters asserted that the
statutory language was discretionary, that the BLM had chosen an
unnecessarily strict and ``nit picking'' interpretation, and that the
BLM's interpretation runs counter to the Energy Policy Act's goal of
encouraging direct use development.
We did not change the proposed rule in response to these comments
because we do not believe that Congress intended the word ``royalty''
at 30 U.S.C. 1004(e) to include direct use fees. As explained in the
preamble to the proposed rule (71 FR 41551), a clear distinction exists
in the statute between ``royalties'' and ``fees.'' Congress provided at
30 U.S.C. 1004(b) that fees are ``in lieu of royalties,'' thus
differentiating the two. Direct use fee payments are different from
royalty payments, and are therefore not included in the statutory
provision for rental credits.
Final section 3211.17 establishes royalty rates on geothermal
resources that are used in the commercial generation of electricity
from or attributable to a geothermal lease. The Energy Policy Act (30
U.S.C. 1004(a)(1)(A) and (B)) provides for a royalty on the sale of
electricity produced from geothermal resources ranging from 1 percent
to 2.5 percent of gross proceeds for the first 10 years of production,
and from 2 percent to 5 percent of gross proceeds thereafter (the MMS
defines ``gross proceeds'' in 30 CFR part 206, subpart H.). The BLM
interprets this section of the Energy Policy Act to apply to situations
in which the lessee or its affiliate sells electricity generated by use
of geothermal resources produced from or attributed to the lease.
Although the statute establishes an allowable royalty range, actual
royalty rates are to be
[[Page 24372]]
established by regulation (30 U.S.C. 1004(c)).
The royalty rates established under final sections 3211.17(a)(1)(i)
and (ii), for geothermal resources that a lessee or its affiliate uses
to generate electricity that it sells, are the same as the proposed
rates: (1) 1.75 percent for the first 10 years of production from a
lease; and (2) 3.5 percent for production in subsequent years. Final
section 3211.17(a)(1)(iii) reiterates the language in the Energy Policy
Act that the percentages in paragraphs (a)(1)(i) and (a)(1)(ii) must be
applied to the gross proceeds from the sale of electricity, and
specifies that gross proceeds must be determined in accordance with
applicable MMS regulations.
Final section 3211.17(a) applies to leases issued on or after
August 8, 2005, except for leases issued in response to lease
applications that were pending on that date for which the lessee does
not make an election under section 3200.8(b) to be subject to these new
regulations. In this final rule, we changed the wording of proposed
section 3211.17(a) to clarify that the election such a lessee may make
is to be subject to all of the new rules; if no election is made, the
lessee will be subject to the regulations in effect on August 8, 2005,
with regard to the provisions specified at section 3200.8(a), including
royalties.
The methodology for establishing royalty prescribed in 30 U.S.C.
1004(a)(1)(A) and (B) represents a significant change from the way
royalty was previously determined. For leases issued before August 8,
2005, that do not convert royalty terms under section 3212.25, and for
leases issued in response to applications that were pending on August
8, 2005, that do not make an election under section 3200.8(b)(1), a
royalty rate in the range from 10 percent to 15 percent of the value of
the geothermal resource will apply. Historically, arm's-length sales of
geothermal resources from a lessee to a third party utility were common
and the arm's-length transaction established the value of the resource.
For most situations where there was no sale of geothermal resources (as
is the case for virtually all existing leases), the value of the
geothermal resource was artificially derived using the ``netback''
method developed by the MMS, a method that in practice has often
resulted in almost no royalty being paid and has been cumbersome for
both the MMS and the lessees. For example, the Geysers Geothermal Field
lessees informed the MMS that the netback method was unworkable, and
negotiated with the MMS to adopt a simpler ``percent of gross
proceeds'' method instead.
The Energy Policy Act simplifies the way in which royalty is valued
by basing royalties on a percentage of gross proceeds derived from the
sale of electricity. Section 1004(c) of the Act requires that in
establishing royalty rates the Secretary must seek to provide a
simplified administrative system, encourage new development, and
achieve revenue neutrality for a period of 10 years when compared to
the valuation methods in the previous regulations. The BLM has
interpreted the revenue-neutrality requirement to require the
calculation of a royalty rate that achieves program-wide revenue
neutrality for the first 10 years of production when compared to
royalty revenues that would have been received during those 10 years
under the previous netback system. Under this interpretation, this
revenue-neutrality requirement does not apply to the royalty rate after
the first 10 years of production.
In establishing the proposed royalty rates, the BLM relied on the
rates recommended by the MMS RPC Subcommittee. The RPC, established
under the Federal Advisory Committee Act, makes recommendations on
issues related to royalties on Federal resources and consists of
representatives from Federal and state governments, industry, and the
public at large. The Subcommittee was formed to address the MMS's
geothermal royalty valuation regulations in an effort to simplify the
language and reduce administrative costs to the geothermal industry.
The Subcommittee was composed of members from one industry association,
several geothermal producers, and two of the major states affected. The
MMS and BLM representatives served as technical advisors to the
Subcommittee.
The Subcommittee asked the MMS to calculate the equivalent gross
proceeds rates for all geothermal plants paying royalties under the
netback method in 2003 and 2004. The MMS determined that the equivalent
gross proceeds rate was 3.64 percent in 2003, and 3.94 percent in 2004,
with an average of 3.79 percent for the 2 years (Royalty Policy
Committee, Geothermal Valuation Subcommittee Report, May 2005 (``RPC
Report''), page 10).
The Subcommittee recommended rates of 1.75 percent for the first 10
years of production, and 3.5 percent thereafter. The Subcommittee
reported that, ``[u]nder the netback method, historically during the
beginning years of an electrical generation project (between 1-10
years), lessees pay a very low percentage of the gross proceeds from
the sale of electricity and in later years of the project (after 10
years), the percentage increases * * *. The recommended proposal [1.75
percent and 3.5 percent] * * * attempts to replicate this historical
trend under the netback method over the long term.'' (RPC Report, page
10). The report stated that ``[f]or new leases, the proposal is
expected to increase revenues over the next 10 years and may be revenue
neutral over the long run.'' (RPC Report, page 11). However, it went on
to state that there was ``[r]isk of a negative revenue impact for the
government if electricity prices are higher and/or costs are lower than
anticipated; and risk of negative impact on companies if prices are
lower and/or costs higher than anticipated.'' (RPC Report, page 12).
The BLM retained a contractor, Advanced Resources International,
Inc. (ARI), to assess whether the proposed 1.75 percent royalty rate
was consistent with the statutory requirement for revenue neutrality
over a 10-year period. ARI recently completed for the BLM a technical
memorandum entitled ``Geothermal Development on Federal Lands:
Projection of Royalty Impacts Resulting from the Energy Policy Act of
2005'' (ARI Report). The ARI Report is publicly available and has been
included in the Administrative Record for this rulemaking. A summary of
the ARI Report follows, much of it derived from the ARI Report
Executive Summary.
The ARI developed an analysis to compare the Energy Policy Act
gross proceeds royalty rate method with the netback method to determine
under what conditions the two would be revenue neutral. Focusing on the
western states of California, Nevada, Utah, and Idaho, the analysis
considered technology (binary and flash plants), potential areas of
development, electricity prices and markets, plant sizes relative to
the technology used, and financial parameters such as capital costs,
operating and maintenance costs, and discount rate. The analysis
assumed a 30-year project life. ``Type'' projects were developed based
on these parameters. To obtain a programmatic view, the various states
were weighted based on where development might occur (California was
divided into two domains). ARI calibrated (checked) the analysis using
historical data.
The ARI modeled nine programmatic cases for analysis to capture a
spectrum of potential development on BLM lands. The differences between
the various cases derive from adjusting those parameters to which the
model was most sensitive, i.e., the relative amount of binary plant
development (as
[[Page 24373]]
compared to the total of binary plus flash plant development), future
electricity prices, and capital costs. Scenarios modeled include
``base,'' ``low,'' ``intermediate,'' ``targeted'' (to achieve a 1.75
percent royalty rate during the first 10 years of production) and
``high'' cases. For each case, the model derived a revenue-neutral
royalty rate for the first 10 years of production (or, for the targeted
cases, adjusted appropriate parameters that would result in the
targeted rate), as well as an accompanying revenue-neutral royalty rate
for production after the first 10 years. All parameters used in the
modeling were based on empirical data. The ARI Report did not recommend
any particular set of royalty rates, but concluded instead that ``[i]t
is reasonable to expect that all scenarios modeled in the cases could
be achievable (including targeted scenarios) depending upon geothermal
resources, future market conditions and technology'' (ARI Report, page
1).
The ARI Report base case assumes: (1) 65 percent of future
geothermal development will use binary technology; (2) future
electricity prices will remain flat (incorporating price supports in
the applicable geographic domains under the California Renewable Energy
Program); and (3) capital expenditures for plant construction (CAPEX)
will be an average of data published by the Geothermal Energy
Association (explained in ARI report, section 2.2.7, page 7). The ARI
Report includes an explanation of all the parameters the model uses.
The ARI also performed an historical analysis of a sample of
existing geothermal leases paying royalties under the netback system to
determine the equivalent royalty they paid during the first 10 years of
their production (see the ARI Report, Section 2.3 on p. 8). The BLM and
the MMS supplied electricity sales and royalty revenue data to the
contractor for nine non-Standard Offer 4 contracts for Nevada.
(Standard Offer 4 contracts had a unique price structure, and would not
be applicable to future geothermal leases.) This sample was based on
the data that was readily available to the BLM. ARI examined this data
for the first 10 years of the project lives to determine the actual
effective netback royalty rate. The binary plants showed an effective
royalty rate of 0.61 percent; for flash technology, the effective
royalty rate was 3.52 percent. For this portfolio of binary and flash
technologies, the effective royalty rate for the first 10 years of
project lives was 1.11 percent as a weighted average. ARI compared
these historical percentages to the percentages derived when the same
data was run in its model and found that the percentages were very
close.
After thorough consideration of both the RPC Report and the ARI
Report, the BLM determined that its proposed royalty rate of 1.75% for
the first 10 years of production meets the statutory requirement for
revenue neutrality. Both the RPC Report and the ARI Report support the
conclusion that estimates of revenue neutrality are extremely sensitive
to potential changes in electricity prices and capital expenditures,
and the ARI Report indicated that the estimates are also very sensitive
to the relative mix of geothermal technology that will be employed in
the future. None of these variables can be predicted with absolute
accuracy. Based on the professional judgment of the BLM geothermal
program staff, the model assumed that binary technology would account
for no less than 50% of new geothermal plants; the assumed percentage
of binary plants in the cases analyzed in the model ranged from 50% to
65%. Regarding capital costs, while the model's base case based its
capital expenditures estimate on an average of published data, the data
showed that actual capital expenditures varied from that average by up
to a third or more (ARI Report, page 16 n.17). The assumed capital
expenditures in the cases analyzed in the model deviated from the base
case by no more than 12%. The ARI Report cited to a recent article on a
geothermal operation in Alaska that provides some evidence that
geothermal capital costs could decline if operators begin substituting
mass-produced parts (ARI Report, page 16 n. 24). Electricity prices,
too, cannot be predicted with accuracy, especially considering the
increasing prevalence of government-mandated use of renewable energy
sources such as geothermal energy. As noted, California already has a
Renewable Energy Program that contains price support provisions (which
the model took into account), and Nevada is considering draft
legislation that could enhance prices for renewable energy in the
future.
The ARI Report demonstrates the impact of potential changes in any
of these variables. For example, Targeted Case A (ARI Report, page 1,
Table, column 5), changed predictions for two of the three parameters
just discussed: It changed the binary plant proportion from 65% to 50%,
and lowered the capital expenditures prediction by 8%. It used the same
electricity price prediction as the base case. If future geothermal
production met those parameters, the model shows that the revenue-
neutral royalty rate for the first 10 years of production would be
1.76% and the revenue-neutral rate for years 11-30 would be 3.57%.
These rates are nearly identical to the rates recommended by the RPC
and proposed by the BLM in its proposed rule.
The modeling exercise makes clear that a revenue-neutral royalty
rate is not simply one number that can be determined with mathematical
certainty, but instead could be within a range of rates, depending on
reasonable assumptions as to what the future holds. The ARI Report
shows that other changes in the parameters, corresponding to other
potential scenarios for future development, result in different
revenue-neutral royalty rates, some higher and some lower than the
BLM's proposed rates. The four targeted scenarios show that the 1.75%
royalty rate for the first 10 years of production could result in
revenue-neutrality in a number of different future scenarios. As noted
above, all parameter variations used in the model were based on
empirical data, and the ARI report concluded that ``[i]t is reasonable
to expect that all scenarios modeled in the cases could be achievable
(including targeted scenarios) depending upon geothermal resources,
future market conditions and technology'' ARI Report, page 1.
The 1.75% rate is clearly within the reasonable range of rates that
would meet the statutory mandate to seek revenue neutrality for the
first 10 years of production. While the BLM's interpretation of the
statute is that there is no mandate of revenue-neutrality after the
10th year, the 3.5% rate for subsequent years is, nevertheless, also
within the reasonable range of revenue-neutral rates. These rates have
the additional advantage of being recommended by the RPC Subcommittee,
which carefully gathered input from many interested parties.
Consequently, the BLM believes that these rates, to which
representatives of the geothermal industry agreed, will also work to
encourage geothermal development.
As noted above, the royalty rate required by the Energy Policy Act,
at 30 U.S.C. 1004(a)(1)(A), requires a royalty of 1 percent to 2.5
percent of gross proceeds from the sale of electricity ``during the
first 10 years of production under the lease.'' The BLM interprets this
language to mean that the 10-year period to which the 1.75 percent
royalty rate applies starts during the month for which commercial
operation is first achieved, and continues for 120 consecutive months,
unless a suspension of operations and
[[Page 24374]]
production is granted under subpart 3212.
Final section 3211.17(a)(2) sets the royalty rate for the arm's-
length sale of resources at 10 percent of gross proceeds from that
sale. The Energy Policy Act is silent regarding the situation where the
lessee sells the resource to an unaffiliated purchaser that produces
electricity, rather than selling the electricity itself. To address
these situations, the BLM is using the recommendations found in the RPC
Report (page 9) which recommended that the lessee ``pay a royalty on
the geothermal resources sold under arm's-length conditions to a plant
that generates electricity based on a royalty rate in the lease
multiplied by the gross proceeds the lessee derives from the sale of
the geothermal resources.'' The Geothermal Steam Act, prior to the
amendments of the Energy Policy Act, required a royalty rate of 10 to
15 percent, and current BLM practice is to issue all leases with a
royalty rate of 10 percent. Section 2 of the standard lease terms
listed on the BLM Form 3200-24, ``Offer to Lease and Lease for
Geothermal Resources,'' sets the royalty rate at 10 percent. The 10
percent royalty rate is thus the current practice, and the Subcommittee
Report concluded that it would cause ``[n]o change in royalty
valuation.''
While the 10 percent royalty rate in the case of an arm's-length
sale of resources for the commercial generation of electricity may
appear to require higher payments by a lessee than the 1.75 and 3.5
percent that are required for ``no-sales'' situations in section
3211.17(a)(1), the actual amount of royalty paid will be roughly
equivalent. This is because the 10 percent rate applies to the gross
proceeds from the sale of the geothermal resource, whereas the 1.75 and
3.5 percent rates for electrical generation apply to the gross proceeds
from the sale of electricity. The electricity generated represents a
refined product with a much higher value than the heat resource
entering a power plant. Therefore, 1.75 and 3.5 percent of a high-value
product will be roughly equivalent to 10 percent of a lower value
product. Because the proposed 10 percent royalty on the gross proceeds
from an arm's-length sale of resource required by section 3211.17(a)(2)
is the same as the royalty that would be required under existing lease
terms, the provisions of this paragraph are revenue neutral.
We received no comments on section 3211.17(a) and, except for the
clarification change discussed above, have adopted it as proposed.
Final section 3211.17(b) establishes the royalty rates for leases
issued before August 8, 2005, where the lessee chooses to convert the
royalty terms of the lease. As discussed earlier, the royalty rates
will continue under the existing terms of such leases unless a lessee
converts to the royalty terms of the new statute under final section
3212.25. Eligibility for and procedures for such conversions are
discussed later in this preamble in the discussion of subpart 3212.
In this final rule we revised section 3211.17(b). For clarity, we
separated proposed section 3211.17(b)(1) into two parts. Final section
3211.17(b)(1) addresses leases that have produced geothermal resources
for the commercial generation of electricity, or to which geothermal
resource production for the commercial generation of electricity has
been attributed. Final section 3211.17(b)(2) addresses leases that have
not produced geothermal resources, and to which geothermal resource
production for the commercial generation of electricity has not been
attributed. We replaced the word ``previously'' with the phrase ``prior
to submitting a request to modify the royalty rate terms of the lease
under section 3212.26.'' We moved the information that was contained in
proposed section 3211.17(b)(2), regarding application of MMS rules, to
final section 3211.17(b)(1)(i) and (ii). These paragraphs are further
discussed below.
Conversion of the royalty terms of existing geothermal leases is
governed by Section 224(e) of the Energy Policy Act. That section does
not make the royalty rate ranges in 30 U.S.C. 1004(a)(1) applicable to
existing leases that convert to new royalty terms. Instead, the royalty
conversion language in Section 224(e)(1)(B) of the Energy Policy Act
requires that except for leases where the geothermal resource is used
for a direct use to which a fee schedule applies, royalties are to be
computed on a percentage of the gross proceeds from the sale of
electricity. Under the statute, the royalty rate is to be set at the
percent of gross proceeds to ``yield total royalty payments equivalent
to payments that would have been received for comparable production
under the royalty rate in effect for the lease before the date of
enactment * * * .''
In the final rule, we divided converting leases that have already
produced geothermal resources for the commercial generation of
electricity into two categories under section 3211.17(b)(1). Under
section 3211.17(b)(1)(i), where a lessee or its affiliate uses
geothermal resources to generate and sell electricity, the BLM will
establish a royalty rate by determining a percentage of gross proceeds
from the sale of electricity that it expects will result in the same
total amount of royalty to be paid over the life of the lease as would
be paid under the current valuation method. The determination of such a
royalty rate will be done on a case-by-case basis and will be based on
the information submitted by the applicant. We added the words ``over
the life of the lease'' to the regulatory text to clarify that the
statutory phrase ``total royalty payments'' means total payments during
the existence of the lease, and not just during a particular period of
production.
In this final rule, we added the category covered by section
3211.17(b)(1)(ii), where a lessee or its affiliate sells geothermal
resources at arm's length to a purchaser who uses those resources to
generate electricity. We provided that in such a case, the royalty rate
is the rate specified in the lease instrument. This is a change from
the proposed rule, in which we proposed to establish a revenue neutral
royalty rate for this category of leases by applying to the gross
proceeds of the purchaser's eventual sale of electricity a rate that
would result in the same total amount of royalty as would be paid under
the current valuation method. In reviewing MMS's draft final rule, it
was discovered that the MMS rule would apply the rate that BLM sets to
the gross proceeds from the lessee's sale of the resource rather than
to the gross proceeds from the purchaser's sale of electricity.
As discussed above, for converting leases, section 224(e)(1)(B) of
the Energy Policy Act requires that royalties be computed on a
percentage of the gross proceeds from the sale of electricity, to
achieve over the life of the lease ``total royalty payments equivalent
to payments that would have been received for comparable production
under the royalty rate in effect for the lease'' before enactment of
the amendments. Under the previous BLM and MMS rules, arm's-length
sales of geothermal resources from a lessee to a third party utility
established the value of the resource. There was no need to
artificially derive a value for the geothermal resource through the
``netback'' method. Thus, any successful method of applying a royalty
rate to the gross proceeds of electricity generated by the purchaser in
an attempt to achieve royalty payments equivalent to existing payments
for arm's-length resource sales would result in the same outcome as
applying the rate in the
[[Page 24375]]
existing lease to the gross proceeds from the sale of the resource.
Because the existing method achieves the equivalent royalty payments
mandated by the statute, we determined that for the sale of the
geothermal resource under arm's-length contracts this method complies
with the statute.
A royalty rate modification under section 3212.25 will thus have no
immediate effect on an existing lessee that only sells geothermal
resources to commercial generators of electricity. However, if such a
lessee elects to be subject to all of the new regulations under section
3200.7(a)(2), it must obtain a royalty modification, which requires
that the rate be addressed in section 3211.17.
In light of this revision of the final rule clarifying that MMS
will apply the royalty rate for converting leases to the gross proceeds
from the sale of the resource and not to the gross proceeds of
electricity generated by the purchaser, it is no longer necessary that
a request to modify royalty terms under section 3212.26 include
documentation that a lessee selling the resource has access to the
purchaser's gross proceeds derived from the sale of electricity. We
therefore did not include that provision in final section
3212.26(a)(2).
Final section 3211.17(b)(2) establishes the royalty rates for
leases that elect to convert to the royalty terms of the Energy Policy
Act, but have never produced geothermal resources. In these cases,
because the BLM will have no data on which it could base a
determination of a revenue-neutral royalty rate, it will assign the
royalty rates in final section 3211.17(a)(1) (1.75 percent for the
first 10 years and 3.5 percent thereafter) or 3211.17(a)(2) (10 percent
of the gross proceeds from the sale of the resource), whichever is
applicable. In this final rule we added the reference to section
3211.17(a)(2) to account for arm's length sales of the resource.
Because the royalty rates in section 3211.17(a) were derived to be
revenue neutral, the BLM has concluded that this meets the intent of
section 224(e)(1)(B) of the Energy Policy Act.
One commenter stated that in proposed section 3211.17, ``BLM sets
the royalty rate for leases that previously did not produce geothermal
resources for commercial generation of electricity from Class II and
III leases at 1.75 percent'' and objected that no explanation was
offered as to why the 1.75 percent rate would result in the same level
of royalty revenue.
First, we want to clarify that the proposed rule at section
3211.17(b)(1) and the final rule at section 3211.17(b)(1)(ii) sets the
royalty rates for leases issued before August 8, 2005, that elect to
convert to the royalty terms of the Energy Policy Act, but have never
produced geothermal resources for the commercial generation of
electricity, not at 1.75% for the life of the lease, but at 1.75% for
the first 10 years of production, and 3.5% thereafter, as provided at
sections 3211.17(a)(1)(i) and (ii). These are the same royalty rates
that will be applied to new leases.
In establishing a process for setting royalty rates for existing
leases that elect to convert to the royalty terms of the Energy Policy
Act, the BLM distinguished between existing leases that have produced
and those that have not produced. Under final section 3211.17(b)(1)(i),
for existing leases that have a history of production, the BLM will
determine on a case-by-case basis a royalty rate that will meet the
statutory requirements. Under final section 3211.17(b)(1)(2), for
existing leases that have never produced, the BLM will apply the same
royalty rates that it will apply to new leases. The reason for this
distinction is that those leases that have produced geothermal
resources for the commercial generation of electricity, and which have
been subject to royalty payments under the netback method, can provide
enough data to perform a case-specific revenue analysis. From this
analysis, a new royalty rate can be established for that case that will
yield an equivalent amount of royalty. In contrast, for leases that
have never produced electricity and that have never paid royalty under
the netback method, there are no data available for a revenue analysis.
Actual data are especially critical for royalty calculations under the
netback method, because the calculation is highly dependent on the type
of facility that is built and requires very specific input data, such
as operation and maintenance costs, capital investment, bond yield
rates, electricity sales price, and transmission line costs. The BLM
concluded that equivalent royalty calculations for leases that have
never produced would be unacceptably speculative. The BLM believes that
the royalty rates applicable to new leases, established in section
3211.17(a)(1), which are intended to be revenue neutral on a
programmatic basis, are a reasonable revenue-neutral surrogate and
should apply in this situation. We did not change the rule in response
to this comment.
The same commenter said that ``the proposed rules imply that the
BLM prescribed rates are not applicable to a Class I lease that
previously produced geothermal resources which is being converted to a
Class II or Class III lease'' and suggested that the BLM add specific
language to section 3211.17 to ensure that the BLM's rates are still
applicable.
The commenter appears to be confused regarding how the BLM will
determine royalty rates for leases issued before August 8, 2005, that
have produced geothermal resources and elect to convert to the royalty
terms of the Energy Policy Act. The statute does not allow the BLM
simply to apply to such leases the royalty rates that will apply to new
leases. Section 224(e) of the Energy Policy Act provides an entirely
different process for existing lessees that wish to convert to the new
royalty terms than the process provided for new leases. Section
224(e)(1)(B) requires ``that royalties be computed on a percentage of
the gross proceeds from the sale of electricity, at a royalty rate that
is expected to yield total royalty payments equivalent to payments that
would have been received for comparable production under the royalty
rate in effect for the lease before'' August 8, 2005 (i.e., under the
``netback'' system). To implement this requirement, the BLM proposed at
section 3211.17(b)(1) that it would seek to establish a rate to yield
total royalty payments equivalent to those that would have been paid
for that lease under the previous system, by which it meant it would
determine the rates on a case-by-case basis. The BLM decided that a
case-by-case system of determining rates was necessary because
equivalent rates under the netback system are highly individualistic
and must take into account the specific situation of each lease. In
response to this comment, we added language to section 3211.17(b)(1)(i)
to clarify that royalty rates for converting leases will be determined
on a case-by-case basis.
One commenter stated that the lack of a cap on the royalty rates in
section 3211.17(b) was inconsistent with the Energy Policy Act, ``which
set ranges for royalties (section 224(a)(1)) and which govern all
federal leases including those being readjusted.'' The commenter also
stated that a cap would be consistent with the recommendations of the
RPC.
We disagree that the statute provides for a cap in determining
modified royalty rates under Section 224 of the Energy Policy Act.
Section 224(a)(1), cited by the commenter, which provides both a floor
and a cap for royalty rates, amends Section 5 of the Geothermal Steam
Act, at 30 U.S.C. 1004. Section 224(a)(2), which also amends 30 U.S.C.
1004, provides that in establishing royalty rates under that section,
the Secretary must seek, among other things, to achieve a revenue-
neutral royalty rate over a 10-year period. Thus,
[[Page 24376]]
the floor and cap do apply to the establishment of revenue-neutral
rates for new leases under 30 U.S.C. 1004. However, Section
224(e)(1)(B) of the Act, which as discussed above, mandates a specific
approach to modifying royalty rates for existing leases, does not amend
30 U.S.C. 1004; it is, in fact, a separate uncodified amendment.
Therefore, the establishment of royalty rates under Section
224(e)(1)(B) is not subject to the royalty rate range provided at
Section 224(a)(1) and codified at 30 U.S.C. 1004. We note, moreover,
that if the cap at 30 U.S.C. 1004 did apply to modified existing
leases, the floor would also apply. Because of the structure of the
previous netback system, we believe it is likely that many existing
leases for which a modified royalty rate is determined under Section
224(e)(1)(B) may have an equivalent royalty rate under the 1% floor.
Thus it is likely that the lack of a specific range could work to the
advantage of lessees.
Final section 3211.17(c) addresses royalty rates for existing
leases and leases issued in response to applications pending on August
8, 2005, that choose not to convert to the royalty terms of the Energy
Policy Act. The royalty rates for these leases have already been
established in existing lease instruments. This paragraph does not
establish new requirements, but is included for completeness and
convenience of the reader. In this final rule, we changed the wording
of proposed section 3211.17(c) to clarify that the election that may be
made by lessees of leases issued in response to applications pending on
August 8, 2005, is to be subject to all of the new rules. If no
election is made, the lessee will be subject to the regulations in
effect on August 8, 2005, with regard to the provisions specified at
section 3200.8(a), including royalties. Except for the changes
discussed above, we adopted sections 3211.17(b) and (c) as proposed.
Final section 3211.18 implements 30 U.S.C. 1004(b) and Section
224(e)(1)(A) of the Energy Policy Act and addresses the royalty rates
for the direct use of production from or attributable to a geothermal
lease.
Final section 3211.18(a) establishes rates for leases issued after
August 8, 2005 (other than leases issued in response to applications
that were pending on that date for which the lessee does not make an
election under section 3200.8(b)), and for existing leases whose
royalty terms are modified under section 3212.25. We revised the
language of this section to clarify that the election that may be made
by the lessee of a lease issued in response to an application that was
pending on August 8, 2005, is to be subject to the new regulations. If
no election is made, the lessee will be subject to the regulations in
effect on August 8, 2005, with regard to the provisions specified at
section 3200.8(a), including royalties.
Final section 3211.18(a)(1) provides that a royalty rate does not
apply to the direct use of geothermal resource production that a lessee
or its affiliate does not sell. Instead, a lessee will pay direct use
fees according to a schedule published by the MMS (see the MMS
regulations at 30 CFR 206.356 for the schedule). The direct use fee
schedule applies to traditional direct uses such as greenhouse heating,
space heating, and industrial heating applications, as well as to non-
commercial generation of electricity as described under final section
3211.18(c), below.
Under final section 3211.18(a)(2), a lessee who produces a
geothermal resource and sells it at arm's length to a purchaser who
uses it for direct use purposes is required to pay a royalty of 10
percent, which will be applied to the gross proceeds derived from the
arm's-length sale under applicable MMS regulations at 30 CFR part 206,
subpart H. Section 3211.18(a)(2) maintains the royalty rate of 10
percent that was found in previous 43 CFR 3211.10.
The Energy Policy Act does not address situations where a lessee
sells geothermal resources in an arm's-length sale to a purchaser who
utilizes such resources for direct use purposes. Under 30 U.S.C.
1004(b)(1)(B), the required schedule of fees applies only to those
situations where the lessee ``does not sell'' geothermal resources.
Because the royalty provisions in section 1004(a)(1) of the Act
specifically refer to electrical generation, they do not cover sale for
direct use, either. To the extent that a gap exists in the statute, we
have filled that gap with respect to new leases under the rulemaking
authority of 30 U.S.C. 1023.
Similarly, a gap exists under the royalty conversion provisions of
Section 224(e)(1) of the Energy Policy Act. Section 224(e)(1)(A)
establishes the royalties for converted leases that meet the
requirements of 30 U.S.C. 1004(b), i.e., leases whose geothermal
resources are used for direct use purposes where no sale of the
geothermal resources occurs. Section 224(e)(1)(B) of the Energy Policy
Act establishes the royalties for converted leases that involve the
sale of electricity (royalties are to be based on a percentage of gross
proceeds from the sale of electricity). Neither subparagraph
establishes the royalty rate for converted leases where a lessee sells
geothermal resources in an arm's-length sale to a purchaser who
utilizes such resources for direct use purposes. Thus, under final
section 3211.18(a)(2), we filled that gap with respect to converted
leases under the rulemaking authority of 30 U.S.C. 1023. The rate BLM
has established under this final rule is the same as the rate for such
sales under the previous regulations and is the same as for arm's
length sales of geothermal resources for electrical generation under
these regulations.
The Energy Policy Act, at 30 U.S.C. 1004(b)(3), requires that if a
state, tribal, or local government is the lessee and uses geothermal
resources without sale and for public purposes other than commercial
generation of electricity, the Secretary must charge only a nominal fee
for use of the resource. Final section 3211.18(a)(3) addresses this
provision of the statute by referencing the MMS rules that implement
this provision (see 30 CFR 206.366). The fee that the MMS sets must be
paid in addition to the rental due on the lease.
Final section 3211.18(b) clarifies that for leases issued before
August 8, 2005, that do not convert the royalty terms of their lease,
and for leases issued in response to applications pending on August 8,
2005, where the lessee does not make an election under section
3200.8(b), the royalty rate is established in the lease form and those
leases will continue to be subject to existing royalty rates. This
paragraph does not establish new requirements, but is included for
completeness and convenience of the reader. We amended the language of
this section to clarify that the election that may be made by the
lessee of a lease issued in response to an application that was pending
on August 8, 2005, is to be subject to the new regulations. If no
election is made, the lessee will be subject to the regulations in
effect on August 8, 2005, with regard to the provisions specified at
section 3200.8(a), including royalties.
Final section 3211.18(c) clarifies the BLM's interpretation of the
meaning of non-commercial generation of electricity. If a lessee
generates electricity that is used solely for the operation of a direct
use facility and does not sell the electricity, this is considered a
direct use subject to the direct use fee schedule.
The Energy Policy Act, at 30 U.S.C. 1004(b)(1), restricts the use
of the direct use fee schedule to situations where the resource is not
sold and is used ``for a purpose other than the commercial generation
of electricity.'' As discussed earlier, the statute requires a royalty
based on a percentage of gross proceeds for commercial generation of
electricity
[[Page 24377]]
(30 U.S.C. 1004(a)(1)(A) and (B)). However, the statute does not
expressly address non-commercial generation of electricity, such as
electricity generated to run fans, pumps, lights, automatic valves, and
instrumentation in direct use facilities. If electricity is not sold,
there are no gross proceeds on which to base a royalty. The BLM does
not believe the intent of the Energy Policy Act is to allow the use of
Federal geothermal resources to generate non-commercial electricity
without compensation. Therefore, as a permissible interpretation of the
statute, the BLM construes the non-commercial generation of electricity
to be a direct use of the resource subject to the direct use fee
schedule.
One commenter objected to the imposition of direct use fees under
section 3211.18 in situations where the geothermal resource was
cascaded from an electrical generation project that already pays
royalty.
The BLM rejects the comment. The Energy Policy Act, at 30 U.S.C.
1004(b)(1), requires a direct use fee ``for geothermal resources, that
a lessee or its affiliate--(A) uses for a purpose other than the
commercial generation of electricity; and (B) does not sell.'' The
definition of geothermal resources includes heat or other associated
energy found in geothermal formations. In applications where hot water
or steam is first sent through an electrical generation facility and
then into a direct use facility, the heat entering the direct use
facility is still considered a geothermal resource. In other words, the
heat entering the direct use facility is ``left over'' heat from the
geothermal formation that was not used by the electrical generation
facility. It thus meets the definition of a geothermal resource and is
used for a purpose other than the commercial generation of electricity.
Therefore, if it is not sold, it is subject to direct use fees. Under
the previous regulations as well (see previous section 3211.16), the
BLM assessed royalties on all uses of heat energy, including those that
could be characterized as ``cascaded.'' We did not change the rule in
response to this comment.
Final section 3211.19 addresses the royalty rate on byproducts
derived from geothermal resources produced from or attributable to a
geothermal lease. We restructured this section in the final rule to
differentiate between leases that will be governed by these final
regulations and those that will remain subject in part to the previous
regulations. Final section 3211.19(a)(1) implements 30 U.S.C.
1004(a)(2) by setting the proposed royalty rate on byproducts listed in
the first section of the Mineral Leasing Act (MLA), 30 U.S.C. 181, to
be the same as the royalty rates in the MLA and implementing
regulations, for geothermal leases subject to these final regulations.
We deleted the list of byproducts included as examples in the proposed
rule. The list mistakenly included oil and gas, which are excluded
under the definition of ``byproducts'' at final section 3200.1. All
minerals listed at 30 U.S.C. 181 that are not excluded under the
definition of ``byproducts'' and are physically possible to produce as
geothermal byproducts are covered by this subsection. We also deleted
the example in paragraph (a)(1) of this section because it is not
necessary.
In the proposed rule at section 3211.19(b), we proposed maintaining
the previous royalty rate of 5% on byproducts that are not listed in
the MLA, such as gold, silver, zinc, etc. The rationale for this was
that there was an apparent gap in the statute; in its amendments to 30
U.S.C. 1004, the Energy Policy Act had removed the language of previous
30 U.S.C. 1004(b) that established royalties of up to 5% for such
byproducts. We stated that, because it was not clear whether Congress
intended to establish such royalties at zero, or to leave it to the
Secretary to set an appropriate royalty rate for such byproducts, we
proposed a 5% royalty rate relying on the general policy under Section
102(a)(9) of the Federal Land Policy and Management Act (FLPMA), 43
U.S.C. 1701(a)(9), that we should receive fair market value for the use
of the public lands and their resources. In the proposed rule we
solicited comments on whether the rate was fair and based upon an
acceptable interpretation of the statute.
We received one comment objecting to the 5% royalty on byproducts
that are not listed in the MLA. The commenter stated that Congress, by
narrowing the scope of the language in the Geothermal Steam Act
regarding royalties on byproducts, showed a clear intent not to impose
a royalty on byproducts that would not be royalty-bearing if they were
produced from the public lands, in accordance with testimony that
industry representatives had presented on this issue. We accept this
comment. After further consideration, we agree that because Section 228
of the Energy Policy Act specifically deleted the former statutory
language that provided for a royalty on all byproducts and substituted
language that limits royalties on byproducts to those listed in the
MLA, the better interpretation is that Congress intended to eliminate
royalties on byproducts that are not listed in the MLA. We therefore
revised the final rule to reflect this interpretation.
Final section 3211.19(a) implements the Energy Policy Act
amendments with regard to leases issued on or after August 8, 2005
(other than leases issued in response to applications that were pending
on that date for which no election is made under Sec. 3200.8(b)(1)),
and leases issued before August 8, 2005, for which an election is made
under Sec. 3200.7(a)(2). Final section 3211.19(b) provides that for
leases issued before August 8, 2005, for which no election is made
under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on that date for which no election is made under
Sec. 3200.8(b)(1), the royalty on all byproducts is the rate
prescribed in the lease instrument, or if none is prescribed in the
lease instrument, the rate prescribed in the previous regulations at 43
CFR 3211.10(b) (2004).
Final section 3211.20 provides that a lessee may credit advanced
royalty toward royalty due under the MMS regulations at 30 CFR
218.305(c). This provision, and the MMS rule, implement 30 U.S.C.
1004(f)(2), which allows for crediting advanced royalty payments
towards royalty due on production. We received no comments on this
section and have adopted it as proposed.
In the proposed rule, we proposed removing previous section 3211.17
(``When do I owe minimum royalty?'') because minimum royalties no
longer apply to new leases. In this final rule, we decided to include a
section with the same title, final section 3211.21, with a paragraph
(a) explaining that leases under the new regulations do not owe minimum
royalty, and a paragraph (b) providing that minimum royalties do apply
to certain older leases and incorporating the substance of previous
section 3211.17. This section has been added for convenience and to
facilitate understanding of when minimum royalties continue to apply.
This section is not intended to add new requirements.
Final section 3211.21(b) clarifies that the leases to which that
paragraph applies owe minimum royalty either when the royalty on actual
production would be less than $2.00 per acre or when the lease is in a
period of non-production, as long as the lease remains in effect.
Previous section 3211.17 implied, but did not clearly state, that
minimum royalties apply to periods of non-production. However, previous
section 3211.14 stated that once a lease achieved production in
commercial quantities it would begin paying royalties instead of rent.
There is no
[[Page 24378]]
exception to this obligation to pay regular or minimum royalty instead
of rent. The BLM has always charged minimum royalties in periods of
non-production, as well as in periods of low production. We have made
this explicit in this final regulation.
Subpart 3212--Lease Suspensions, Cessation of Production, Royalty Rate
Reductions and Energy Policy Act Royalty Rate Conversions
The title of final subpart 3212 has been expanded to better reflect
all subject matter within this subpart.
Lease Suspensions
Final section 3212.10 addresses the difference between a suspension
of operations and production and a suspension of operations. Under
final section 3212.10(a), a suspension of operations and production is
a temporary relief from production obligations that a lessee may
request from the BLM.
This section removes economic conditions as a basis for concluding
that continued operations are unjustifiable. The BLM believes that a
lessee should not be able to hold a lease indefinitely merely because
it is uneconomic to conduct operations. This would not promote the
development and recovery of geothermal resources. In circumstances
where geothermal operations are expected to become economic, the new
statute provides that a lessee that is subject to the new statutory
provisions could cease production for as much as 10 years in aggregate
and yet hold its lease through the payment of advanced royalty (see
discussion of final section 3212.15(a)(1), below).
Final section 3212.10(b) explains that a suspension of operations
is when the BLM, on its own initiative, orders a lessee to stop
production temporarily in the interest of conservation. The regulatory
text more closely follows the statute at 30 U.S.C. 1010 than did the
previous regulation. We received no comments on section 3212.10, and
have adopted it as proposed.
Final section 3212.11 remains substantively unchanged from the
previous regulation except that the final rule clarifies that unit
obligations may be separately suspended under subpart 3287. We received
no comments on this section, and have adopted it as proposed.
Final section 3212.12 is similar to the previous section except
that paragraph (b) clarifies that a lessee cannot unilaterally
terminate a suspension that the BLM ordered. The reference to
``minimum'' royalties has also been removed because, as specified under
final section 3211.21(a), minimum royalties are no longer required for
certain categories of leases. For leases identified under final section
3211.21(b), minimum royalties will continue to apply and will need to
resume upon termination of a suspension. We received no comments on
this section, and have adopted it as proposed.
Final section 3212.13 is substantively similar to the previous rule
except that during a suspension of operations, the BLM may also suspend
lease or royalty obligations if it determines that a lessee would be
denied all beneficial use of its lease during the period of the
suspension. Although we received no comments on this section, the final
rule makes it clear that the BLM has discretion to suspend a lease or
royalty obligations. The proposal could have been misinterpreted to
mean that BLM is required to suspend the rental or royalty obligations.
Final section 3212.14 removes the previous reference to ``minimum''
royalties and substitutes the word ``terminate'' for the previous word
``cancel,'' because the remedy referred to should be a termination, not
a cancellation. As noted above, the resumption of ``rental and
royalty'' payments may include minimum royalty payments under final
section 3211.21 for certain categories of leases. We received no
comments on this section, and have adopted it as proposed.
Lease Requirements and Payments Due During a Cessation of Production
Final section 3212.15 addresses whether, and under what
circumstances, a lease can remain in full force and effect if a lessee
ceases production and the BLM does not grant a suspension. Section
3212.15 implements 30 U.S.C. 1004(f)(1) and (3).
In part, the intent of final section 3212.15 is to allow temporary
cessations of production, lasting more than a month, without lease
termination and without a lessee having to apply for a suspension of
operations and production. Thus, under this final rule, the BLM will
not consider production stoppages of less than one full calendar month
to be a cessation of production. The BLM added this limitation for
several reasons:
(1) Routine maintenance, such as plant overhauls, is an inherent
part of producing a geothermal resource. While overhauls and other
maintenance can last more than a month, most maintenance operations
only require plant shut down for a period of days or weeks. Because
maintenance is an inherent part of producing a geothermal resource,
performing maintenance for less than a month is still considered to be
``production;''
(2) From an administrative standpoint, tracking shutdowns lasting
less than a month would be expensive and cumbersome. The reports that
the BLM receives are all based on calendar months. If a lease was shut
down for an entire calendar month, the reports required by subpart 3270
would indicate zero production and this would alert the BLM to consider
implementing this section of the regulations. However, if a lease
produced for part of a month, the reports would indicate some quantity
of production. The only way the BLM could determine if the lease was
not producing for part of a month would be a physical inspection of the
lease and a review of the metering records to determine when the lease
was shut-in; and
(3) If a lease produces for any portion of a month, royalty would
be due. As long as a lessee is diligently producing from its lease,
there is no need to collect a royalty on actual production for a
portion of a month and an advanced royalty for cessation of production
for the remainder of the month. Accordingly, final section 3212.15 will
only apply if an operation is shut down for more than a calendar month.
Final section 3212.15 contains separate paragraphs, each of which
describe a set of circumstances under which a cessation of production
could occur without lease termination. In this final rule, we
redesignate proposed section 3212.15(a) as final section 3212.15(a)(1)
and add a new section 3212.15(a)(2) that is discussed below. This has
been done because only certain categories of leases are subject to the
advanced royalty provisions of the new statute, and others can maintain
their leases in other ways, as discussed below.
Final section 3212.15(a)(1) implements 30 U.S.C. 1004(f)(1), which
allows the payment of advanced royalty in lieu of production. This
paragraph applies to leases issued on or after August 8, 2005 (other
than leases issued in response to applications pending on that date for
which no election is made under section 3200.8(b)(1)), and to leases
issued before August 8, 2005, for which an election to all of the terms
of the regulation is made under section 3200.7(a)(2). For such leases,
under the final rule, once commercial production is achieved, a lessee
will be allowed to keep a lease in effect for a total of 10 years with
no production, without having to apply for a suspension of
[[Page 24379]]
operations, if the lessee continues to pay advanced royalty under the
final MMS regulations at 30 CFR 218.305. The BLM has interpreted 30
U.S.C. 1004(f)(1) to allow a total of 120 months (10 years) of advanced
royalty payments, whether consecutive or not. As explained in the MMS
rule at 30 CFR 218.305, the amount of advanced royalties due during a
cessation of production for leases subject to the new statutory
provision is no longer the ``minimum royalty'' referenced in previous
sections 3211.17 and 3212.14, but is based upon an historical average
monthly royalty rate.
Because 43 CFR 3207.15 (implementing 30 U.S.C. 1005(g) and (h))
provides for maintaining the lease through a production extension if
the lessee has a well capable of production and makes diligent efforts
to utilize the resource, we interpret the cessation of production
provision at 43 CFR 3212.15(a)(1) as not requiring a well capable of
production or diligent efforts to utilize the resource, as long as the
lessee pays advanced royalties.
A lessee will continue to be required to pay rentals during the
period for which it pays advanced royalty. The BLM has reached this
conclusion because the section of the Energy Policy Act that
establishes rental obligations, 30 U.S.C. 1004(a)(3), specifies that
rentals are paid for each year of a lease, without exception. To
understand the manner in which rental payments and rental credits will
affect advanced royalty calculations and payments, see the final MMS
rule.
Because the statutory language of 30 U.S.C. 1004(f)(1) is specific
to leases on which royalty was previously paid, final section
3212.15(a)(1) does not apply to direct use operations where the lessee
pays direct use fees instead of royalties. The Energy Policy Act does
not contain an ``advanced fee'' counterpart for direct use. Therefore,
a lessee using the geothermal resource for seasonal operations in a
greenhouse, for example, could not pay advanced royalties during the
months of the year when no production occurs to maintain its lease in
effect. However, if the BLM approved the seasonal operations as part of
the lessee's utilization plan, it would not be considered a cessation
of production. If seasonal operations were not approved, the lessee
would need a lease suspension to maintain the lease in effect.
Under final section 3212.15(a)(1), the term ``commercial
production'' has a different meaning than the term ``produced or
utilized in commercial quantities,'' because the advanced royalty
section is not intended to apply to leases that have a well capable of
production without having actually produced geothermal resources; it is
only intended to apply to leases that have achieved actual production
or are receiving allocated production through some type of agreement.
Although we did not receive a comment on this issue, in reviewing
the proposed rule we recognized that a provision needed to be added to
account for those leases that continue to be subject to the royalty
provisions in effect on August 8, 2005, and do not have the opportunity
to pay advanced royalties. Although these regulations allow leases
issued before August 8, 2005, and leases issued based upon applications
pending on August 8, 2005, to elect to be subject to all of the
regulations of 43 CFR parts 3200 and 3280, some lessees may choose not
to make such an election and will remain subject to the earlier royalty
provisions. Those lessees will not be able to pay advanced royalties to
maintain their leases.
However, such lessees had recourse under the earlier rules to
maintain their leases by paying minimum royalties. Thus, for leases
issued before August 8, 2005, for which no election is made under
section 3200.7(a)(2), and for leases issued in response to applications
pending on August 8, 2005, for which no election is made under section
3200.8(b)(1), final section 3212.15(a)(2) has been added to address the
conditions necessary for a lease to remain in effect during the period
in which there is no production and the lessee does not have an
approved suspension. Under such circumstances, a lease will remain in
effect if the lessee: (1) Continues to make minimum royalty payments as
specified in final section 3211.21(b); (2) Maintains a well capable of
production in commercial quantities; (3) Continues to make diligent
efforts to utilize the geothermal resource; and (4) Satisfies any other
applicable requirements. This practice was allowable under, but not
well articulated in, the previous regulations (previous section
3211.17, now restored in substance as final sections 3211.21 and
3212.14).
Final section 3212.15(b) specifies other circumstances that would
allow leases to remain in full force and effect without having to pay
advanced royalties if production ceases. This section includes
situations when the BLM: (1) Requires or causes the cessation of
production; or (2) Determines that the cessation of production is
required or otherwise caused by the Secretary of the Air Force, Army,
or Navy; by a state or a political subdivision of a state; or by a
force majeure event. This section implements 30 U.S.C. 1004(f)(3). We
received no comments on this section, and have adopted it as proposed.
Final section 3212.15(c) allows lessees to keep their leases in
effect (without paying advanced royalties) during extended outages due
to maintenance activities that are necessary to maintain operations.
For this paragraph to apply, the maintenance would be required to last
more than one calendar month and would require the BLM approval before
the end of the first month in which no production occurs. To obtain
approval, the lessee must demonstrate to the BLM's satisfaction that
the cessation is part of required maintenance. The basis for this
provision is that maintenance required to maintain operations is a
production activity, not a cessation of operations. Required
maintenance activities under this paragraph could include overhauling a
power plant, re-drilling or re-working wells that are critical to plant
operation, or repairing and improving gathering systems or transmission
lines that necessitate the discontinuation of production. It should be
noted that the application of paragraph (c) of this section does not
affect a lessee's obligations to pay rentals or minimum royalties,
whichever is applicable.
One comment requested an alternative to obtaining prior approval
for maintenance activities lasting more than 1 month, as required in
final section 3212.15(c). The commenter alluded to ``upset'' conditions
for which it would be impossible to plan in advance or to obtain prior
approval. We accept the comment. The intent of the proposed requirement
was twofold: (1) To ensure that maintenance lasting more than a
calendar month is not misconstrued to be a cessation of production
requiring advanced royalties to be paid; and (2) The filing of a
Geothermal Sundry Notice would give the BLM the opportunity to review
the reason for the extended outage to ensure that it meets the criteria
for maintenance. However, the intent of the requirement does not
necessarily require that a Geothermal Sundry Notice be filed in advance
of the outage. As long as the BLM is made aware of the outage prior to
the end of the first month where there will be no reported production
on a lease, the need for a payment of advanced royalty will be averted.
Therefore, the last sentence of final section 3212.15(c) was changed to
read: ``You must obtain BLM approval by submitting a Geothermal Sundry
Notice if the activity will require more
[[Page 24380]]
than 1 calendar month to be classified as maintenance under this
paragraph. The Geothermal Sundry Notice must be received by BLM before
the end of the first calendar month in which there will be no
production.''
For those lessees subject to the royalty provisions in effect on
August 8, 2005, lessees would continue to be subject to applicable
minimum royalty obligations during maintenance periods, and could keep
their leases in effect by satisfying the requirements of final section
3212.15(a)(2) instead of under final section 3212.15(c).
Final section 3212.16 replaces previous section 3212.15 and
provides the standards for reduction, suspension, or waiver of rental
or royalties. It is similar to the previous section, but more closely
follows the statutory provision at 30 U.S.C. 1012. Paragraph (b) makes
clear that the BLM will not approve a royalty reduction, suspension, or
waiver unless all royalty interest owners other than the United States
accept a similar reduction, suspension, or waiver. This provision was
in the previous regulations at section 3212.16(b). We received no
comments on this section.
Final section 3212.17 specifies the information that must be
included with a request for a royalty or rental rate reduction,
suspension, or waiver. It includes the information in previous section
3212.16, but clarifies that all of the information must be submitted.
We received no comments on this section, and have adopted it as
proposed.
Production Incentives
The Energy Policy Act (at Section 224(c) and (d)) establishes
production incentives for new facilities and qualified expansion
projects that are put into commercial operation by August 8, 2011. The
incentives are in the form of a 4-year, 50 percent reduction in royalty
from what otherwise would be due. Final sections 3212.18 through
3212.24, and final MMS regulations at 30 CFR 218.307, implement these
statutory provisions.
If a project is defined as a ``new facility,'' all of the
production from that facility is subject to the 50 percent reduction in
royalty that would otherwise be due. If a project is defined as a
``qualified expansion project,'' only the additional electricity
generated as a result of the project is subject to the reduced royalty.
Qualifying a project as a ``new facility'' would generally be more
difficult and would typically result in more capital expenditure than
an expansion project. Although a ``qualified expansion project'' may be
easier to achieve, strict monthly production targets would be
established that the project must meet in order to qualify.
Final section 3212.18 provides a general description of the
requirements for obtaining a production incentive.
The production incentives will only be available for those leases
that were issued before August 8, 2005, and that do not convert their
royalty provisions under final section 3212.25. Because Section 224(c)
of the Energy Policy Act specifically refers to reductions in royalty,
the BLM has interpreted this to mean that the incentives are intended
only for the commercial generation of electricity and not for direct
use projects.
The BLM received one comment requesting clarification of section
3212.18 regarding the types of leases for which production incentives
apply, and referring to the new classification of leases in the final
MMS rule at 30 CFR 206.351.
The production incentives discussed in section 3212.18 are only
available for leases that were in effect prior to August 8, 2005, and
on which the royalty terms were not converted under section 3212.25
(equivalent to part of MMS Class 1). These criteria are listed in
sections 3212.18(a) and (b), respectively. In addition, production
incentives are only available for leases that provide for the
commercial generation of electricity (section 3212.18(d)). Because no
changes to these regulations were requested by the commenter, no
changes were made. However, the MMS has made changes to its final rule
to clarify these class designations.
Final section 3212.19 requires lessees seeking a production
incentive to submit a written request. The BLM does not anticipate
developing a specific application form for production incentive
requests; a lessee can make the request in a letter. The letter can
provide a description of the project and whether the applicant prefers
the project to be considered a new facility or a qualified expansion
project. If the applicant is requesting the project to be considered as
a new facility, the letter should include sufficient technical
justification to support the general criteria set forth in section
3212.22. If the applicant is requesting the project to be considered as
a qualified expansion project, the letter should describe the
anticipated amount of capital expenditure (section 3212.21(a)) and the
estimated increase in net generation resulting from the project
(section 3212.21(b)). The letter should include sufficient technical
detail to support these estimates. We received no comments on this
section, and have adopted it as proposed.
Final section 3212.20 describes how the BLM will review a request
for a production incentive. The BLM will review incentive requests on a
case-by-case basis to determine whether a proposed project meets the
criteria for a qualified expansion project under final section 3212.21
or a new facility under final section 3212.22 (see the discussions
below of the criteria for qualified expansion projects and new
facilities). If the request does not meet the criteria for the type of
project the lessee requests, the BLM will determine whether it meets
the criteria for the other type of production incentive project.
Under final section 3212.20(b), if the BLM determines that a lessee
has a qualified expansion project, the BLM will, as part of its
approval, provide the lessee with a schedule of monthly target net
generation amounts. Projects must generate greater than these amounts
to qualify for the production incentive. These amounts will quantify
the required 10 percent increase in net generation over the projected
net generation without the project. The schedule will be specific to
the facility or facilities that are affected by the project and will
cover the 48-month time period during which the production incentive
may apply. The lessee will receive the production incentive only for
those months in which its net generation exceeds the monthly target.
Averaging of production to achieve production targets will not be
allowed (see the preamble discussion of section 3212.23). We received
no comments on this section. However, in the final rule we make it
clear that net generation must exceed the monthly target to qualify for
the production incentive, as required by the Energy Policy Act.
Final section 3212.21 specifies the criteria necessary to establish
a qualified expansion project for the purpose of obtaining a production
incentive. Because one goal of the Energy Policy Act is to encourage
new projects that will increase the amount of electricity generated
from geothermal resources, the BLM will not approve projects for this
incentive that do not involve significant capital expenditure.
Specifically, the BLM is concerned that this provision of the Energy
Policy Act could be abused if, for instance, a lessee simply opens
production valves to achieve the required increase in generation.
Examples of activities involving substantial capital expenditure could
include: (1) The drilling of additional wells; (2) Retrofitting
existing wells and collection systems to increase production rates; (3)
[[Page 24381]]
Retrofitting turbines or power plant components to increase efficiency;
(4) Adding additional generation capacity to existing plants; and (5)
Enhanced recovery projects such as augmented injection. Projects that
are not associated with substantial capital expenditure, such as
opening production valves or operating existing equipment at higher
rates, would not be considered to be qualified expansion projects.
While the Energy Policy Act specifically refers to ``expansion of
the facility'' in relation to qualified expansion projects, the BLM
broadly interprets this to mean the expansion of any portion of a
geothermal project that will result in increased generation. This
includes not only expansion to the power plant, but also projects in
the well field, such as additional drilling, workovers, and enhanced
geothermal projects, such as augmented injection or acid and fracture
stimulation.
Under Section 224(d) of the Energy Policy Act, a qualified
expansion project must increase ``production'' by more than 10 percent
over the average monthly production during the previous 5 years, taking
into consideration production trends that occurred in those 5 years.
The BLM interprets this provision to mean that if 5 years of data are
not available, the project could not be classified as a qualified
expansion project. In addition, the BLM interprets the term
``production'' to mean ``net generation,'' because this meets the
intent of the statute to increase the amount of useable electricity
from geothermal resources. The following graph illustrates these
requirements:
If a lessee satisfies the criteria for a qualified expansion
project, the BLM will perform a reservoir analysis of the 5 years of
data that is submitted and, from that analysis, will develop a monthly
schedule of target net generation amounts. The lessee could perform its
own reservoir analysis and develop a schedule of target generation
amounts and submit it to BLM for review. The BLM could modify this
schedule. Whichever schedule BLM approves, net generation must exceed
these target amounts to qualify for a reduced royalty for that month.
Because the production incentive is only in effect for 4 years, a
schedule will cover the 48-month period for which the production
incentive may be applied. We received no comments on this section, and
have adopted it as proposed.
[GRAPHIC] [TIFF OMITTED] TR02MY07.000
Final section 3212.22 identifies criteria for determining whether a
project qualifies as a ``new facility.'' Because the BLM does not have
a formal definition for ``facility'' and because of the high degree of
variation in projects, each application will be considered on a case-
by-case basis based on the factors described in the rule. Factors
listed in support of concluding that a project qualifies as a new
facility include: (1) The project requires a new site license or
facility construction permit if it is on Federal lands; (2) The project
requires a new Commercial Use Permit; (3) The project includes at least
one new turbine-generator unit; (4) The project involves a new sales
contract; (5) The project involves a new or substantially larger
footprint; or (6) The project is not contiguous to an existing project.
Generally, a new facility will not be: (1) Authorized only with a
Geothermal Drilling Permit; (2) Constructed entirely within the
footprint of an existing facility; or (3) Involve only well field
projects such as drilling new wells, increasing injection, and enhanced
recovery projects.
If the BLM determines that a proposed project could be approved
either as a ``new facility'' or as ``qualified expansion project,'' the
BLM will approve the application under the category requested by the
applicant. If a project does not qualify as a ``new facility,'' the BLM
will automatically review it, with no action necessary on the
applicant's part, to see if it will qualify as a ``qualified expansion
project.'' We received no comments on this section, and have adopted it
as proposed.
Final section 3212.23 describes how production incentives apply to
qualified expansion projects. The Energy Policy Act, at Section 224(d),
requires a production incentive to be granted if a qualified expansion
project resulted in greater than a 10 percent increase in production.
However, that section of the Act is silent on how long the 10 percent
increase would have to be maintained. The BLM is concerned that a
project could exceed the target increase for a short period, yet obtain
the production incentive for the entire allowable 4 year period. The
BLM believes the intent of the production incentive is to encourage
projects that would result in a sustainable increase in production.
Therefore, final section 3212.23
[[Page 24382]]
authorizes a reduced royalty only for those months where the qualified
expansion project exceeds the BLM-established net generation targets.
The Energy Policy Act at Section 224(c)(1)(b), requires the
production incentive to be applied to ``qualified expansion geothermal
energy,'' which is further defined in Section 224(d)(1) of the Energy
Policy Act as being a ``production'' increase as a result of the
expansion of the facility. The BLM interprets this to mean that the
reduced royalty only applies to the increase in net generation
resulting from a qualified expansion project. To define the increase in
net generation, final section 3212.23 includes an equation that uses
the target generation amounts defined in final section 3212.20 as a
basis. The denominator of the equation (1.1) in section 3212.23
converts the target generation amount to the baseline generation amount
which represents the amount of electricity that would have been
generated without the qualified expansion project. In the final rule we
revised the description of the formula to make it clear exactly which
production qualifies for the incentive. The following bar graph
illustrates the application of the incentive for qualified expansion
projects:
[GRAPHIC] [TIFF OMITTED] TR02MY07.001
Under final section 3212.24, for projects that qualify as ``new
facilities,'' the royalty on all the net generation from the facility
will be reduced by 50 percent for the 48-month period following the
commencement of commercial operation, regardless of the amount of
electricity generated. To simplify the administration and tracking of
the production incentives, the production incentive takes effect on the
first day of the month following the commencement of commercial
operation of the project. In the final rule we added a sentence to the
end of paragraph (a) to make it clear that the incentive applies to the
entire commercial generation of electricity from the new facility. The
amount of the production incentive for new facilities is established by
the final MMS regulations. We received no comments on this section, and
with the exception of adding the clarifying language, have adopted it
as proposed.
Energy Policy Act Royalty Rate Conversions
Final section 3212.25(a) implements Section 224(e) of the Energy
Policy Act, allowing lessees of geothermal leases issued before August
8, 2005, to request that the BLM modify their leases to convert the
royalty rate terms of their leases to the royalty and direct use fee
terms in the Energy Policy Act. Final section 3212.25(a) also provides
that, if the BLM modifies the royalty rate terms of a lease, the new
royalty rates and direct use fees will apply to all future production
from or allocated to that lease. Final section 3212.25(b) references
final sections 3211.17 and 3211.18 and applicable MMS regulations for
the specific royalty rates and direct use fees that will apply to a
modified lease.
One commenter suggested that language be added to section 3212.25
to clarify that once a lessee decides to convert the royalty terms of
its lease under this subpart, that the decision is irreversible. This
comment is accepted because the intent of Section 224(e) of the Energy
Policy Act is clearly to make the change in royalty terms permanent.
Adding language to this effect in section 3212.25(a) will clarify the
intent. Section 3212.25(a) has been changed to read in part: ``You may
withdraw your request before it is granted, but once you accept the new
terms, you may not apply to revert to the earlier royalty rates. If
your request to modify is granted, the new royalty rate or direct use
fees will apply to all geothermal resources produced from your lease
for as long as your lease remains in effect.''
In reviewing the comments received, the BLM was concerned that the
first sentence of section 3212.25(a) could be construed to mean that
certain entities besides the lessee could submit a request to modify
the royalty terms of a lease. This confusion may arise because
[[Page 24383]]
the MMS definition of lessee (30 CFR 206.351) includes anyone ``who has
been assigned an obligation to make royalty, fee, or other payments
required * * * .'' The MMS definition also includes affiliates of the
lessee who use the geothermal resource to generate electricity, in a
direct use process, to recover byproducts, or who sell or transport
lease production. The intent of section 3212.25(a) is that only the
entity holding record title interest in a geothermal lease (the
``lessee'' as defined in the BLM regulations at 43 CFR 3200.5) can be
granted a modification in royalty terms of the lease. To make this
change, we modified this section to make it clear that ``you'' refers
to the lessee.
In implementing Section 224(e) of the Energy Policy Act, the BLM
construes the statute to mean that the only royalty term in the lease
that will be converted is the royalty rate on production from, or
allocated to, the lease. This is emphasized in the final rule by use in
a number of places of the phrase ``royalty rate terms'' instead of the
proposed phrase ``royalty terms.''
Other lease and statutory terms pertaining to ``royalty'' exist,
such as ``minimum royalty'' (see final section 3211.21 incorporating
previous sections 3211.10 and 3211.17) and ``advanced royalty'' during
cessation of production (final section 3212.15(a)(1)). Under the final
rule, these terms will not be converted under an application to convert
royalty rate terms pursuant to final section 3212.25. Also, the royalty
rate for byproducts will not be modified under a section 3212.25
conversion. This is because Section 224(e)(2) of the Energy Policy Acts
specifies that the modification that may be made under that section
relates to royalties that will be computed ``on a percentage of the
gross proceeds from the sale of electricity * * *.'' Because byproducts
are unrelated to the generation of electricity, the section does not
apply to byproducts. In this final rule, we added a sentence to section
3212.25(a) to clarify this. As explained above, we also restructured
final section 3211.19, relating to byproducts, to differentiate between
leases that will be governed by these final regulations and those that
will remain subject in part to the previous regulations. However, as
discussed earlier, a lessee of a lease issued before August 8, 2005,
can choose to make all of its lease terms subject to the new provisions
adopted in this rule by making an election under section 3200.7(a)(2).
For example, under the final rule, if the lessee of a lease issued
prior to August 8, 2005, elects to convert the royalty rate terms of
the lease under section 3212.25, the lessee will be subject to the new
royalty rate on gross proceeds for the commercial generation of
electricity and direct use fee schedule for direct use operations.
Unless that lessee makes an election under section 3200.7(a)(2),
however, the lessee will continue to be subject to the minimum royalty
and byproduct royalty provisions of the previous regulations and will
not be required to pay rental once commercial production begins. In
addition, the lessee will not be able to keep its lease in effect by
paying advanced royalty under section 3212.15(a)(1) if it ceases
production for more than a calendar month, but would need to satisfy
one of the other provisions of section 3212.15 to keep its lease in
effect during a period of no production.
This interpretation as it relates to the non-conversion of minimum
royalty and advance royalty provisions is based upon possible
complications that could occur if some, but not all, of the other
provisions changed. For example, under the Geothermal Steam Act, prior
to the amendments made by the Energy Policy Act, rental on a lease was
only due until the lease began actual production or was deemed to have
a well capable of production. At that point, the greater of actual
royalty on production or minimum royalty was due every month. If the
BLM were to include the minimum royalty terms in the conversion under
final section 3212.25, lessees electing to convert the royalty terms of
their lease would no longer pay minimum royalty because there is no
minimum royalty provision in the Energy Policy Act. But, once a lease
had a well deemed capable of production, the rental commitments of the
existing lease terms would end; therefore, unless the rental provisions
of the new statute applied, the lessee would not pay rental or minimum
royalty during a period on non-production. The BLM does not believe it
was the intent of the Energy Policy Act to allow lessees to hold a
lease without making some type of payment. Section 224(e) of the Energy
Policy Act does not allow lessees to apply to change the rental terms
of existing leases; only the royalty rate term.
In addition, if lessees did not convert the requirement at previous
section 3211.10 for minimum royalty payment, then becoming subject to
the payment of advanced royalties as well when production ceases for
more than a calendar month would be burdensome and redundant. Absent a
suspension, in cases where an existing lessee does not produce for a
calendar month, the previous minimum royalty provisions require that
minimum royalty be paid (see previous sections 3211.10 and 3211.17 and
final section 3211.21). The BLM believes that Congress did not intend
for one lessee to pay both minimum royalty and advanced royalty if
production ceases.
The BLM received no comments on its interpretation. Except for the
addition of the clarification discussed above regarding byproducts,
this section has been adopted as proposed. As already noted, however,
existing lessees do have the option to elect to make all of the terms
of their leases subject to these regulations (see section 3200.7), so
that, in addition to a converted royalty rate, their leases would also
be subject, for instance, both to both continual rental obligations and
advanced royalty, instead of minimum royalties during a cessation of
production.
Section 224(e) of the Energy Policy Act requires any lessee wishing
to convert the royalty rate terms of its lease to apply to the BLM.
Final section 3212.26 establishes an application process and requires
certain types of information to be submitted together with the
application. For electrical generation, the lessee must submit enough
information to allow the BLM to determine how much royalty the lessee
would have paid under the netback method, if that is the current method
the lessee is using. As mentioned earlier, in situations where a lessee
or its affiliate is selling geothermal resources at arm's length,
before those resources are used to generate electricity, the lessee
would be required to document in its application that it has access to
the purchaser's gross proceeds derived from the sale of the
electricity. From the information contained in the application, the BLM
will calculate a new royalty rate that will result in the same amount
of royalty.
Final section 3212.26(c) states that the BLM must receive an
application to convert no later than 18 months following the effective
date of the applicable final rule. For direct use operations, the
applicable final rule is the MMS rule at 30 CFR 206.356(b)(1) (direct
use fee schedule); for the commercial generation of electricity, the
applicable final rule is this rule, and the application deadline is
December 1, 2008. This section implements Section 224(e)(2) of the
Energy Policy Act. If both the MMS and the BLM final rules are made
effective on the same day, then all applications will have to be
received no later than December 1, 2008. We received no comments
suggesting changes to this section, and have adopted it as proposed.
[[Page 24384]]
Final section 3212.27 implements Section 224(e)(3) and (4) of the
Energy Policy Act, and also requires the BLM to consult with the MMS in
implementing the royalty conversion provision. The BLM will also review
an application to ensure that the lessee has suitable meters necessary
to determine the royalty due under the modified lease terms.
The final rule will allow lessees who have requested a modification
of the royalty terms of their lease 30 days to reject the modified
royalty rate that the BLM determines. Without a review period, lessees
would essentially be committing themselves to a new royalty rate at the
time they requested the modification, without knowing what the new
royalty rate would be. This could involve some risk for lessees, and
the BLM felt this risk would be a disincentive for lessees to apply for
a conversion of royalty terms. In addition, if there were no review
period, the only recourse lessees would have to a royalty percentage
they found objectionable would be an appeal to the Interior Board of
Land Appeals (IBLA). The BLM believes it is in the public interest to
get as many leases as possible off the netback system, and that
offering a review period would help facilitate this goal.
In the final rule the BLM has adopted a process in final section
3212.27(d) to allow the BLM to comply with the time specified in
Section 224(e)(3)(A) of the Energy Policy Act and issue a lease
modification no later than 180 days after the date of receipt of a
complete application under section 3212.25. The revised procedure is as
follows: (1) No later than 140 days after the day on which the BLM
determines it received a complete request with all necessary
information, the BLM will send the lessee written notification of the
proposed royalty rate that the BLM determines to be revenue neutral;
(2) No later than 30 days after the date of receipt of the BLM
notification, the lessee may reject the proposed royalty rate in
writing; and (3) If the lessee rejects the proposed rate, the BLM must
receive written notification from the lessee no later than 30 days of
the date after receipt of the BLM's notification.
The rule provides flexibility by specifying that the BLM will
accept a faxed rejection notification received within the 30-day time
limit, if followed by a written confirmation that the BLM must receive
no later than the 179th day following the day on which it determines
the complete request was received. The time frames specified will allow
the BLM to issue the lease modification within the statutory time
frame. The rule also provides that if a lessee rejects the proposed
royalty rate on a timely basis: (1) The BLM will not issue a decision
modifying the royalty rate terms of the lease; (2) The existing royalty
rate terms in the lease continue to apply; and (3) The lessee may not
reapply for a royalty rate term conversion under section 3212.25 of
this part. Finally, the rule provides that unless timely written
notification is received from the lessee rejecting the proposed rate,
the BLM will issue a decision modifying the royalty rate terms of the
lease no later than 180 days after the day on which the BLM determines
a complete request was received. The effective date of the new royalty
rate is the first day of the month following the date on which the
decision was issued. For example, a decision issued on July 21st, will
become effective on August 1st. The BLM decision establishing the
royalty rate will be appealable to the IBLA, but allowing the applicant
to reject the new royalty rate completely before it is finalized and
maintain the existing rate may serve to limit the number of appeals.
One commenter requested that the 180-day period for the BLM to
respond to a request for modification of royalty terms (section
3212.27(d)) be reduced to 120 days. We did not change the rule in
response to this comment. As mentioned above, the 180-day time frame is
required by statute. In light of the 30-day review period now being
afforded the lessee, the potential complexity of the economic analyses,
and the expected volume of lease conversion requests, the BLM does not
feel that 120 days would offer sufficient time to process requests.
The BLM received a comment asking for clarification of a site-
specific issue regarding pre-paid royalty. We reject this comment
because it addresses a specific and unique situation. These regulations
preserve the royalty terms for existing leases unless a lessee chooses
to convert the lease. It is not appropriate to address in these
regulations specific circumstances arising under existing leases. To
the extent the commenter raises a valuation issue, it should consult
with the MMS.
One commenter commended the BLM and the MMS for using the royalty
rates recommended by the MMS Royalty Policy Committee. The BLM
acknowledges the comment and recognizes that use of these recommended
royalty rates in the proposed rule reflects a consensus reached by our
stakeholders.
Subpart 3213--Relinquishment, Termination, and Cancellation
Final sections 3213.10 and 3213.11, relating to lease
relinquishment, contain minor changes from the previous sections. We
received no comments on these sections, and with the exception of minor
changes, have adopted them as proposed.
Final section 3213.12, relating to the minimum size of a remaining
lease following a partial relinquishment, is amended to create an
exception for direct use leases. The exception is necessary because,
under 30 U.S.C. 1003(g)(1), the size of direct use leases could easily
be less than 640 acres. We received no comments on this section, and
have adopted it as proposed.
Final section 3213.13 contains some editorial changes. For the most
part, it remains substantively unchanged from the previous regulation,
but clarifies that surface and other resources need to be reclaimed as
well as restored. We received no comments on this section, and have
adopted it as proposed.
Final section 3213.14 implements 30 U.S.C. 1004(g), regarding the
termination of a lease for failure to pay rentals on time. This section
represents a substantial change from the procedures under previous
sections 3213.14 through 3213.20, which were based on statutory
language that was removed by the Energy Policy Act. Under previous
section 3213.14 (which implemented previous 30 U.S.C. 1004(c)), failure
to pay the full rental amount by the anniversary date of the lease
resulted in automatic termination of the lease by operation of law. No
grace period was provided for late payment. Previous section 3213.15
(which implemented a proviso in previous 30 U.S.C. 1004(c)) provided
that a lease will not terminate if the MMS receives a timely rental
payment that is deficient by a nominal amount. Under the previous rule,
the MMS notified the lessee of the nominal deficiency and provided a
date by which a further payment must be paid. If the payment was not
made in the time allowed, the BLM terminated the lease as of the
anniversary date of the lease. Previous sections 3213.17, 3213.18,
3213.19, and 3213.20 contained a process for petitioning for lease
reinstatement if a lease terminated for failure to pay rent on time.
These regulatory provisions were also based on previous 30 U.S.C.
1004(c). The Energy Policy Act removed the provisions of 30 U.S.C.
1004(c) relating to lease termination, replacing them with the
provisions of current 30 U.S.C. 1004(g), described below. The new
[[Page 24385]]
statute contains no express process to petition for lease
reinstatement.
Under the revised statute at 30 U.S.C. 1004(g)(1), a 45-day grace
period beginning on the date of the failure to pay the rental (the
lease anniversary date) is provided for a lessee to pay its rent in
full before the BLM will terminate a lease. The Secretary must
terminate any lease with respect to which rental is not paid in full on
the expiration of the 45-day period beginning on the date of the
failure to pay the rental. Unlike the previous statute, the new statute
contains no exception for timely rental payments that are deficient by
a nominal amount. The section provides further, at 30 U.S.C.
1004(g)(3), that a lease that would have otherwise terminated upon
expiration of the 45-day period will not terminate if the lessee pays
to the Secretary, before the end of that period, the amount of rental
due plus a late fee equal to 10 percent of the amount due. Final
section 3213.14(a) implements this statutory provision. This provision
also makes clear that, if the MMS does not receive a lessee's rental
plus the late fee by the end of the 45-day period described above, the
BLM will terminate the lease. We received no comments on this section,
and have adopted it as proposed.
Under 30 U.S.C. 1004(g)(2), the Secretary is required to
``promptly'' notify a lessee that has not paid rental required under
the lease, that the lease will be terminated at the end of the 45-day
period referred to in 30 U.S.C. 1004(g)(1). The MMS will provide this
notification. The legislative intent of this paragraph appears to be
that the Secretary should put a lessee on notice that it has a grace
period to pay rental before its lease will be terminated for failure to
pay. From a logistical standpoint, however, this legislative intent may
be frustrated. For instance, it may take the MMS a considerable amount
of time to notify lessees that the lease anniversary date has passed
and that the MMS has not received the rental payment when it was due.
If, for example, it were to take the MMS 30 days to provide the
required notification, a lessee would only have 15 days' notice to pay
within the 45-day timeframe required by paragraph (1) of the Act. As a
further example, it is possible in certain circumstances that the MMS
notification would not occur until after the expiration of the 45-day
period, and after the BLM lease termination.
The BLM is concerned that the practical difficulties with providing
a lessee with adequate notice could lead to the unintended consequence
of having leases terminate without the lessees being provided adequate
notice to pay their overdue rental. Such an outcome would seem to be
inconsistent with the requirement that the Secretary ``promptly''
notify the lessee of the unpaid rental. Final section 3213.14(b)
addresses this situation and provides a remedy that the BLM believes to
be consistent with Congressional intent. The final rule ensures that
lessees have at least 30-days notice to pay overdue rental in full. It
provides that if a lessee receives the MMS notification of the non-
payment of rental less than 30 days before the end of the 45-day
period, the lessee will have a full 30 days from receipt of the notice
to pay its rental in full. If the MMS receives the rent plus the 10
percent late fee within 30 days after the lessee received the
notification, the BLM will either not terminate the lease for non-
payment of rental or will reinstate a lease that was terminated under
final section 3213.14(a). In other words, every lessee will have no
less than 30 days notice to either avoid a lease termination or to have
its lease reinstated if it were terminated at the end of the 45-day
period.
The statutory basis for final section 3213.14(b) is as follows: The
statute does not expressly address the situation where, in practice,
the ``prompt'' notification would compress the actual notice to a
lessee to less than 30 days. The final rule more fully implements the
Congressional intent of providing adequate notice to a lessee.
Moreover, under 30 U.S.C. 1023, the Secretary may prescribe regulations
that it may deem appropriate to carry out the provisions of the Act,
and may include, without limitation, rules to prevent waste, conserve
geothermal resources, and protect the public interest. Final section
3213.14(b) furthers all of these goals, and also implements
Congressional intent to provide a fair grace period to a lessee who
fails to pay rent on time. Although not directly applicable, this
section is consistent with the intent of 30 U.S.C. 1011 that a lease
not be terminated for any violation unless the lessee has 30 days'
notice to correct the violation. We received no comments on this
section, and have adopted it as proposed.
Final section 3213.15 carries forward the text of previous section
3213.16. Previous sections 3213.15, 3213.17, 3213.18, 3213.19, and
3213.20 have been removed because they do not reflect the current
statute. We received no comments on removing these sections and have
made these revisions as proposed.
Previous sections 3213.21 and 3213.22, relating to lease
expiration, have been removed because these matters are covered in
subpart 3207, relating to terms and extensions of leases. We received
no comments on removing these sections and have adopted the changes as
proposed.
Final sections 3213.16, 3213.17, 3213.18, and 3213.19 clarify the
provisions and terminology of previous sections 3213.23, 3213.24, and
3213.25, relating to lease cancellation and termination. Lease
cancellation means undoing the lease as if it never existed.
Cancellation is covered by final section 3213.16 and is limited to
situations when the BLM issues a lease in error. In other
circumstances, the previous rules used the term ``cancel'' when the
appropriate term should have been ``terminate.'' Thus, final section
3213.17 describes situations where the BLM could terminate (not cancel)
a lease as of a particular date. Conforming changes are made to other
provisions of the final regulations by replacement of the word
``cancellation'' with the word ``termination.'' The rule also clarifies
that ``cancellation'' does not apply to non-payment of rent which, as
explained above, would be covered by final section 3213.14. In response
to a request by the MMS, the BLM has clarified in final section 3213.17
that among the bases for lease termination is the nonpayment of
royalties or fees under 30 CFR 206 and 218. This is not new in
substance, but a reminder to lessees of the possible consequences of
not making correct payments to the MMS.
Final section 3213.19 addresses circumstances where the BLM
notifies a lessee that its lease is being terminated because of a
violation. It clarifies the procedures of the previous section 3213.25
by specifying that a hearing may be requested in the context of the
appeal of a proposed lease termination. It also follows the statutory
text of 30 U.S.C. 1011 in that a lessee may avoid lease termination by
diligently proceeding to correct a violation, but also states that it
is insufficient to make a good faith attempt to correct the violation
without actually correcting it. We received no comments on sections
3213.16, 3213.17, 3213.18, and 3213.19, and have adopted the change in
terminology as proposed.
Subpart 3214--Personal and Surety Bonds and Subpart 3215--Bond Release,
Termination, and Cancellation
Subparts 3214 and 3215 address bonding of geothermal operations.
Most sections of the final subparts remain substantively unchanged from
their previous counterparts. Changes have been implemented to clarify
[[Page 24386]]
terminology, and improve grammar and readability. The changes are
explained below.
In final section 3214.12(c), we specify that the bond must cover
rent in addition to royalty because under the Energy Policy Act rents
continue for the life of the lease and do not stop when commercial
production begins, as was the case under previous regulations. Such a
requirement was implied in the proposed rule under section 3214.12(d),
which requires the bond to cover compliance with the requirements of
section 3200.4.
In final section 3214.14(b), we provide that the bond may be
increased to ensure the reclamation of the surface ``and other
resources.'' The previous regulation did not expressly include ``other
resources.'' We received one comment requesting clarification of this
language, stating a concern that it was ambiguous and open-ended. The
BLM disagrees. Rather than just surface reclamation, we are concerned
that the lessee's operations could result in other environmental
damage, such as to groundwater, and we want to make sure that the bond
covers all appropriate reclamation and remediation.
In final section 3214.18, the title has been clarified to match the
content of the section. Final section 3214.18(b) clarifies that
reclamation responsibilities extend to resources other than the
surface, and final section 3214.18(d) expressly mentions royalties as
well as rents. We received no comments on this section, and have
adopted it as proposed.
Final section 3215.13 has been reorganized for clarity. It also
clarifies that even after bond termination, a surety and any other bond
provider remain responsible for obligations that accrued during the
period of liability while a bond was in effect. We received no comments
on this section, and have adopted it as proposed.
Subpart 3216--Transfers
Subpart 3216 addresses geothermal lease transfers. The final
subpart is substantively unchanged from the previous subpart. Minor
changes have been adopted to clarify terminology, and improve grammar
and readability.
We received one comment related to the last sentence in section
3216.13, ``What are my responsibilities after I transfer my interest?''
While this provision was unchanged from the previous regulations, we
accept the commenter's observation that the provision is ambiguous and
have clarified the last two sentences of 3216.13 to read: ``You also
remain responsible for plugging and abandoning any wells that were
drilled or existing on the lease while you held your interest. You must
carry out this responsibility upon the BLM's determination at any
future time that the wells must be plugged and abandoned.''
Final section 3216.14 has been changed to indicate that the filing
fees for transfers are found in 43 CFR 3000.12. We received no comments
on this section, and except for the change mentioned above, have
adopted it as proposed.
Final section 3216.19 recognizes that direct use leases have
different size constraints than regular geothermal leases. Thus, the
final section relating to the size of allowable lease transfers
contains an exception for direct use leases. We received no comments on
this section, and have adopted it as proposed.
Subpart 3217--Cooperative Agreements
Subpart 3217 addresses cooperative agreements. The final subpart
has few substantive changes from the previous subpart. Changes have
been proposed to clarify terminology, and improve grammar and
readability.
Subpart 3217 describes two types of cooperative agreements, unit
and communitization agreements, and addresses the requirements of
Federal lessees who join with others to conserve the geothermal
resource under unit and communitization agreements. The Energy Policy
Act, at 30 U.S.C. 1017(e), specifically authorizes the pooling of land
under communitization agreements in order to develop geothermal
resources where operators cannot successfully develop tracts
independently. The BLM cannot approve these agreements unless the BLM
determines them to be in the public interest.
Final section 3217.10, describing unit agreements, has been revised
to more closely follow the statutory language at 30 U.S.C. 1017(a). The
term ``cooperative plan'' is removed from the previous section 3217.10
because the agency does not require approval of a cooperative plan and
does not use that term in a regulatory context.
Sections 3217.11 through 3217.13 are substantively unchanged from
the previous regulations.
The term ``operating contracts'' is removed from final sections
3217.14 and 3217.15, leaving the statutory terms ``drilling contract''
and ``development contract,'' both of which appear in 30 U.S.C.
1017(g). The BLM uses the terms ``drilling contract'' and ``development
contract'' interchangeably to describe the agreement parties use to
cooperatively explore under a communitization agreement. Final section
3217.14(b) includes reference to regional exploration, which typically
describes the scope of drilling or development contracts. This section
has also been revised to make it clear that drilling or development
contracts are limited to exploration activities. Final section
3217.14(c) is added to acknowledge current BLM practice of coordinating
the review of a proposed drilling or development contract with the
appropriate state agencies. Final section 3217.14(d) has been changed
to more accurately reflect a provision of the Energy Policy Act that
requires the BLM to determine that approval of a drilling or
development contract best serves or is necessary for the conservation
of natural resources, public convenience or necessity, or the interests
of the United States.
Section 3217.15 remains substantively unchanged from the previous
regulations. We received no comments related to subpart 3217, and so
the changes are adopted as proposed.
Subpart 3250--Exploration Operations--General; Subpart 3251--
Exploration Operations: Getting BLM Approval; Subpart 3252--Conducting
Exploration Operations; Subpart 3253--Reports: Exploration Operations;
Subpart 3254--Inspection, Enforcement, and Noncompliance for
Exploration Operations; Subpart 3255--Confidential, Proprietary
Information; and Subpart 3256--Exploration Operations Relief and
Appeals
Subparts 3250 through 3256 contain provisions regulating geothermal
exploration of Federal lands. Minor changes to these subparts clarify
existing terminology and procedures and make the subparts more
readable.
Several changes are adopted throughout these subparts to make it
clear that an approved Notice of Intent to Conduct Geothermal Resource
Exploration Operations would be equivalent to a permit. In most cases
the terms ``Notice of Intent'' or ``Notice of Intent to Conduct
Geothermal Resource Exploration Operations'' have been substituted for
the terms ``exploration permit'' or ``permit.''
Final section 3250.10 is substantively unchanged from existing
regulations and the proposed rule.
Final section 3250.11, addressing the general question related to
where exploration can occur, has been moved from previous section
3251.11 of the subpart addressing exploration approval. This
necessitates the renumbering of subpart 3251.
[[Page 24387]]
Final sections 3250.12 and 3250.13 are substantively unchanged from
the previous regulations and the proposed rule.
The content of final section 3250.14 has been taken from the
previous section 3250.11. This reorganization provides a more logical
sequence of general questions related to the regulation of exploration
operations.
There are no substantive changes to sections 3251.10 through
3251.15. As mentioned previously, the content of previous section
3251.11 has been moved to final section 3250.11 and the remaining
sections have been renumbered to correspond to final sections 3251.10
through 3251.14.
Final section 3251.15(b) revises the previous section 3251.16(b) to
ensure that bond release cannot occur unless operators not only have
reclaimed the land surface, but also, if necessary, resolved other
environmental, cultural, scenic, or recreational issues. Reclamation
includes resolving the impacts of geothermal exploration activities on
other resource values in addition to reclamation of the surface (see
discussion and answer to comment related to section 3214.14(b)).
We received no comments on the changes to subparts 3250 through
3256, and have adopted these sections as proposed.
One commenter suggested expanding the use of categorical exclusions
(CXs) under the NEPA to expedite exploration permits. Since the
adoption of new categorical exclusions involves coordination and
approval by the Council on Environmental Quality (CEQ), and was not
part of the proposed rule, consideration of this request is beyond the
scope of this final rule.
Subpart 3260--Geothermal Drilling Operations--General; Subpart 3261--
Drilling Operations: Getting a Permit; Subpart 3262--Conducting
Drilling Operations; Subpart 3263--Well Abandonment; Subpart 3264--
Reports--Drilling Operations; Subpart 3265--Inspection, Enforcement,
and Noncompliance for Drilling Operations; Subpart 3266--Confidential,
Proprietary Information; and Subpart 3267--Geothermal Drilling
Operations Relief and Appeals
Subparts 3260 through 3267 establish permitting and operations
procedures for drilling and testing geothermal wells as well as
producing or injecting geothermal resources. These subparts also
address other types of geothermal well operations. No substantive
changes were proposed to these subparts. Changes have been adopted to
clarify terminology and improve grammar and readability.
We received no comments on the proposed minor changes to subparts
3260 through 3267, and have adopted them as proposed.
The BLM received some general comments related to environmental
concerns, the NEPA, and permitting. As a general matter, the comments
concerning the NEPA raise issues beyond the scope of these regulations.
The NEPA process is governed by other regulations (40 CFR parts 1500
through 1508), in addition to our operations permit requirements in the
various subparts in parts 3250, 3260, and 3270, none of which are
substantively changed by the rule being promulgated today. The Energy
Policy Act did not make changes to portions of the statute relating to
surface use rights or permit requirements, and therefore these matters,
and the environmental studies and timeframes associated with these
requirements, are beyond the scope of this rule.
Subpart 3270--Utilization of Geothermal Resources--General; Subpart
3271--Utilization Operations: Getting a Permit; Subpart 3272--
Utilization Plan and Facility Construction Permit; Subpart 3273--How to
Apply for a Site License; Subpart 3274--Applying for and Obtaining a
Commercial Use Permit; Subpart 3275--Conducting Utilization Operations;
Subpart 3276--Reports: Utilization Operations; Subpart 3277--
Inspections, Enforcement, and Noncompliance; Subpart 3278--
Confidential, Proprietary Information; and Subpart 3279--Utilization
Relief and Appeals
The regulations in subparts 3270 through 3279 address the
permitting and operating requirements for the utilization of geothermal
resources. Except as referenced below, no other substantive changes
from the previous rules are made to these subparts. Changes have been
adopted to clarify terminology and improve grammar and readability. The
final rule adopts the proposed rule without substantive change.
Final section 3275.14 removes the previous requirement in section
3275.14(c)(3) to measure the temperature out of a facility because this
information is no longer needed for the valuation of direct use
operations using the MMS fee schedules. For ``no-sales'' situations,
lessees with leases issued under the Energy Policy Act and with leases
converting to the new royalty terms under sections 3212.25 or 3200.8
are no longer required to calculate the amount of heat displaced by the
geothermal resource to compensate the Federal Government for the use of
the geothermal resource. Instead, lessees will use a direct use fee
schedule that is based only on inlet temperature and the monthly volume
or mass produced (see the MMS regulation to be codified at 30 CFR
206.356). In developing the direct use fee schedule, the MMS assumed a
fixed outlet temperature of 130 [deg]F, which greatly simplifies the
metering system and the calculations.
For situations involving the arms-length sale of geothermal
resources to a direct use facility and for leases issued under the
previous royalty terms which do not convert to the new royalty terms,
final section 3275.14(d) gives the BLM the authority to require outlet
temperature recorders on a case-by-case basis, if needed.
One comment related to proposed section 3275.21, which provided
that the BLM may order a lessee to drill and produce wells on its lease
when the BLM finds it necessary to protect Federal interests, prevent
drainage, or ensure that lease development and production occur in
accordance with sound operating practices. The commenter asserted that
it should be the developer's choice to drill, not the BLM's, and that
the BLM should not be in a position to cause a developer to expend that
kind of money. The BLM disagrees, and finalizes the rule as proposed.
This provision is unchanged from the previous regulations. The BLM has
the authority and responsibility to require the lessee to comply with
lease terms that require a lessee to drill and produce to protect
Federal interests, prevent drainage, or ensure that lease development
and production occur in accordance with sound operating practices.
Final section 3276.14 eliminates the requirements of previous
section 3276.14(a) to report a daily breakdown of flow, average
temperature in, and average temperature out. The information
requirements in previous sections 3276.14(d) and (e) are also
eliminated. The purpose of the data was to allow the calculation and
verification of thermal energy displaced, which was the basis for
valuation in the previous MMS regulations. For leases issued under the
Energy Policy Act, and for existing leases that convert to the new
royalty terms of the Energy Policy Act under sections 3212.25 or
3200.8, direct use operations are valued using the MMS fee schedule
that determines fees due as a function of inlet temperature and monthly
volume or mass produced. Therefore, collection of the data is no longer
necessary.
[[Page 24388]]
For situations where the resource is sold under an arm's length
contract for use in a direct use facility and for leases issued with
the previous royalty terms that do not convert to the royalty terms of
the Energy Policy Act, the daily breakdown of flow, average temperature
in, and average temperature out may still be required. However, the BLM
believes these situations will be relatively rare and can be handled on
a case-by-case basis under section 3276.14(d).
Part 3280--Geothermal Resources Unit Agreements
This final rule revises previous part 3280. For the most part, the
final rule adopts the rules as proposed. The following identifies and
discusses changes from the proposed rule.
The final rule implements the Energy Policy Act relating to unit
agreements, specifically 30 U.S.C. 1017. Additionally, the final rule
updates procedural requirements related to unit agreement
administration. The rule clarifies the BLM's expanded authority
regarding unitization, as provided under the Energy Policy Act. Under
the rule, the BLM may require: (1) The formation of a unit agreement;
(2) Existing Federal leases to commit to a unit agreement; (3) New
leases to contain a provision requiring the lessee to agree to commit
to a unit agreement if the BLM so requires; and (4) A modification of
the rate of resource exploration or development within a unit. The rule
also establishes that a majority interest of owners in a Federal lease
has the authority to commit the lease to a unit agreement.
Other provisions of this rule do not change previous procedure or
practice, but clarify and articulate unit agreement requirements. These
provisions include: (1) Setting out application procedures for unit
area designations and unit agreements, in the order each step typically
occurs; (2) Identifying the BLM's procedures for reviewing applications
and making final decisions regarding unit area designations, unit
agreements, and participating areas; (3) Explaining the BLM procedures
for administering a unit agreement once it is in effect; (4) Specifying
how a unit operator can receive the BLM approval to modify unit terms,
including those related to unit contraction; and (5) Establishing
minimum initial and continuing unit development requirements and
conditions for terminating the unit agreement. The final rule
standardizes existing practices, assures consistent BLM procedures, and
informs the public how the BLM handles unit agreements. These
provisions are described in greater detail below.
Subpart 3280--Geothermal Resources Unit Agreements: General
Final section 3280.1 explains that the purpose and scope of part
3280 is to provide holders of Federal and non-Federal geothermal leases
and owners of non-Federal mineral interests the opportunity to unite
under a Federal geothermal unit agreement to explore for and develop
geothermal resources in a manner that is necessary or advisable in the
public interest. To be consistent with the statute, the final rule uses
the phrase ``necessary or advisable in the public interest,'' derived
from 30 U.S.C. 1017(a), rather than the proposed phrase ``meeting the
public interest.''
This rule removes previous section 3280.0-3 as unnecessary. The
authority citation for the part follows the Table of Contents for part
3280, and the discussion of functions within the Interior Department is
covered by the Department of the Interior Departmental Manual.
Final section 3280.2 includes definitions from previous section
3280.0-5, with certain revisions. Unnecessary definitions of terms such
as ``agreement'' and ``cooperative agreement'' are removed. Several
definitions are added, including definitions for the terms ``unit
contraction provision,'' ``plan of development,'' ``public interest,''
``reasonably proven to produce'' and ``unit well.''
A minor change from the proposal was made to the final definition
of the term ``unit well.'' Instead of stating that a unit well is
located on a ``lease committed to the unit agreement,'' the final rule
provides that a unit well is located on ``unitized land,'' a defined
term.
The BLM's policy regarding the formation of units, previously
included in section 3280.0-2, is revised and included in final section
3280.3. The new section sets forth the policy contained in 30 U.S.C.
1017(a) that, for the purpose of more properly conserving the natural
resources of any geothermal reservoir, field, or like area, or any part
thereof, lessees and their representatives can unite with each other,
or jointly or separately with others, in collectively adopting and
operating under a unit agreement for the reservoir, field, or like
area, or any part thereof, including direct use resources, if
determined and certified by the BLM to be necessary or advisable in the
public interest. The BLM has decided not to adopt the proposed
parenthetical phrase ``whether or not any part of the geothermal
reservoir, field, or like area, is subject to any unit agreement''
because it does not appear to contribute substantially to the stated
policy.
Final section 3280.4 addresses the BLM's authority to require the
formation of a unit agreement and to require Federal leases to be
committed to a unit agreement. It implements 30 U.S.C. 1017(a)(3) and
(b). Final section 3280.4(a) provides that the BLM can initiate the
formation of a unit agreement, or require an existing Federal lease to
commit to a unit agreement, if it is in the public interest. This
implements a statutory provision and does not require the consent of a
lessee. Modification of lease terms to facilitate creation and
operation of the unit, however, does require lessee consent (30 U.S.C.
1017(a)(4) and final section 3280.5).
Final section 3280.4(b) states that the BLM can require that
Federal leases becoming effective on or after August 8, 2005, contain a
provision stating that the BLM can require commitment of the lease to a
unit agreement. Under this provision the BLM can also prescribe the
unit agreement to which such lease will be required to commit in order
to protect the rights of all parties in interest, including the United
States. This provision implements 30 U.S.C. 1017(b)(2).
As mentioned above, final section 3280.5 provides that the BLM can,
with the consent of the lessees involved, establish, alter, change, or
revoke rates of operations (including drilling, operations, production,
and other requirements) of the leases, and make conditions with respect
to the leases in connection with the creation and operation of any such
unit agreement as the BLM can consider necessary or advisable to secure
the protection of the public interest. This implements 30 U.S.C.
1017(a)(4)(A). The rule also provides that if leases to be included in
a unit have unlike lease terms, the leases will not be required to be
modified to be in the same unit. This implements 30 U.S.C.
1017(a)(4)(B).
One commenter had a number of questions concerning the
applicability of the new final regulations to leases and units in
existence on August 8, 2005. Specifically, the commenter asked: Are the
new unit provisions applicable to existing leases within an existing
unit? What if they are pre-August 8, 2005, leases? Can the existing
unit be declared void even though the existing unit agreement does not
provide for this? The commenter also asserted that paragraphs 3280.5(a)
and (b) would be inconsistent in their application, since (b) negates
(a).
[[Page 24389]]
To clarify these provisions of the final rule, any BLM-approved
unit agreements in effect prior to June 1, 2007 will continue to be
administered subject to the terms of the unit agreement, and will not
be voided or canceled unless that remedy is warranted under the
agreement. If the unit operator seeks the BLM's approval for a
modification of the agreement, such modification will be made under the
regulations in effect when the BLM acts upon the modification request.
Also, the new regulations will govern unit matters not expressly
addressed in existing agreements. The BLM actions taken after June 1,
2007 on new unit applications or on applications pending on June 1,
2007 will be governed by the new rules.
As to leases within units, leases in effect prior to August 8,
2005, will be administered as provided under final section 3200.7,
which sets out which regulations apply to each lease. As mentioned
above, leases with unlike terms are not required to be modified to be
included in a unit.
The BLM does not agree that section 3280.5(b) negates section
3280.5(a). Although the BLM cannot require that leases be modified to
be included in a unit, the BLM may obtain the consent of lessees to
establish, alter, change, or revoke rates of operations (including
drilling, operations, production, and other requirements) of the
leases, and make conditions with respect to the leases, with the
consent of the lessees, in connection with the creation and operation
of any such unit agreement as the BLM may consider necessary or
advisable to protect the public interest. Lessees will generally have
an incentive to provide such consent because under final section
3281.19, the BLM cannot approve a unit agreement that does not protect
the public interest.
Final section 3280.6 provides that the BLM can require a unit
agreement that applies to lands owned by the United States to contain a
provision under which the BLM or an entity designated in the unit
agreement can alter or modify, from time to time, the rate of resource
exploration, development, or production quantity or rate under the unit
agreement. This final section implements 30 U.S.C. 1017(c).
Final section 3280.7 clarifies that the BLM cannot require lands
that are not under Federal administration to be committed to a unit.
Subpart 3281--Application, Review, and Approval of a Unit Agreement
Final subpart 3281 reorganizes the application, review, and
decision procedures for unit area designation and the unit agreement
into a sequential, step-by-step, description. The final regulations
describe in detail the steps to follow and the information a
prospective unit operator has to submit, as well as the process the BLM
follows to make application decisions. The first step is for the BLM to
designate the unit area.
Final section 3281.1 makes clear that before a unit agreement is
effective, the BLM must designate the unit area and approve the unit
agreement.
Final section 3281.2 provides a list of information that the unit
operator must submit before the BLM can make a unit area designation.
The prospective unit operator will be required to submit a geologic
report, a map of the final unit area, a list of leases and tracts
located in the final unit area, and any other information the BLM
requires.
Final section 3281.3 provides more detail on the types of geologic
information the unit operator should provide to document that the final
unit area is geologically contiguous and suitable for exploration,
development, and production of the resource.
Final section 3281.4 makes it clear that final unit areas are not
required to be of a specific size or shape, but the size can cause the
BLM to require the drilling of more than one unit well to meet minimum
initial unit obligations.
Final section 3281.5 explains how the BLM will resolve conflicts
between unit applications that contain overlapping areas. If separate
unit applications overlap, the BLM can: (1) Approve the unit
application designation which best meets public interest requirements;
(2) Designate a different unit area; or (3) Require revision of the
applications. The BLM will not approve any final unit agreement if it
included lands committed to another unit agreement already in effect.
A change from the proposal is included in final section 3281.5(b)
to make it clear that the BLM can reject an application or a portion of
an application for a unit. This revision provides the BLM with greater
flexibility when reviewing unit applications. Should a unit application
involve lands already committed to a unit agreement, this revision will
allow the BLM either to reject only the overlapping portion of the
application, or to reject the entire application.
A commenter expressed concern about how the BLM, under section
3281.5, will handle a unit area application that overlaps an existing
approved unit area and agreement. The commenter's concern is misplaced.
Final section 3281.5(a) only describes procedures for reviewing
competing unit applications, not situations where an application is
filed for a new unit in the area of an existing effective unit. Once a
unit is in effect, the BLM will not accept the submittal of a new unit
application which includes lands located in an effective unit.
The commenter's concerns are pertinent, however, to a situation in
which an expansion of an existing unit is proposed. The commenter
asserted that lessees in an existing unit that would be overlapped by a
new or expanded unit should have a voice in the formation of the new or
expanded unit. The commenter suggested that at the very least the rule
should require the unit operator in the original unit to consult with
the lessees in its unit before expanding the unit to allow existing
lessees to refuse joinder to protect their lease interest and to
conserve the resource. The commenter asserted that if existing lessees
are not given this protection by regulation, the methods of operation
of the existing unit could be jeopardized contrary to their unit
agreement, and the lessees' shares of the revenues could otherwise be
diluted or reduced without their consent or justification since these
are apportioned on the basis of leased acreage in the unit. The
commenter stated that this situation has to be clearly defined by
regulation, and not left to the BLM's discretion. Finally the commenter
said that the amendments to the Geothermal Steam Act do not prohibit
the BLM from adopting such a regulation.
The BLM has not made any revisions based on the comment because the
regulations address these concerns. Subpart 3281 specifies that the BLM
must designate a unit area prior to it becoming effective. As required
through the designation review process, each prospective unit operator
must contact all lessees located within each respective unit area for
unit commitment. This requirement has been in effect since geothermal
unitization was initiated, and it should continue to provide all
potential lessees with adequate information regarding unit proposals.
Although a lessee is not required to agree to the expansion, the
commenter is correct that under section 3280.4 the BLM can require a
Federal lessee to commit to a unit, but only if all involved interests
are protected.
Expanding a unit area does not affect individual revenue share.
Only revising the participating area changes revenue share. The
establishment or revision of a participating area is based on the
informational requirements found in subpart 3282. This information,
based primarily on well testing information,
[[Page 24390]]
provides a strong indication of the portion of the unit area that
contains resources proven to be commercial. While expanding the
participating area to include additional acreage and resources may
reduce the percentage of total revenues to individual lessees, this
short-term reduction in revenue should be balanced by the addition of
commercially proven resources that will ultimately be recovered and
shared by all lessees in the participating area.
Final section 3281.6 describes how the BLM determines whether to
approve unit designation and how the BLM notifies operators of the
decision. Among other considerations, the BLM determines if the
geologic basis for the unit area is sound for the development of the
unit area. This is the principal factor in deciding whether the unit
area will be designated.
Under the rule, if the BLM approves a unit area designation, the
prospective unit operator initiates the steps required for unit
agreement approval. Final section 3281.7 describes the information a
unit operator must submit to the BLM for unit agreement approval.
Consistent with previous section 3281.3, the prospective unit
operator is required to provide an opportunity for all owners of
mineral rights and lease interests to join the unit under final section
3281.8 and then supply the BLM with documentation of the commitment
status of each lease or tract as required by final section 3281.9.
Documentation includes a signed joinder agreement or evidence the
interest owners were offered an opportunity to join the unit. Under 30
U.S.C. 1017(a)(2) and section 3281.9(b), a majority interest of owners
in a lease can commit the lease to a unit agreement.
Final section 3281.10 explains that the BLM reviews the commitment
status documentation to insure that the prospective unit operator has
sufficient control of the unit area to conduct resource development in
the public interest.
Final section 3281.11 addresses the required qualifications of a
prospective unit operator. The qualification requirements for unit
operators have not changed. This is consistent with previous section
3282.1.
One commenter described what it thought was an inconsistency in the
proposal. The commenter asserted that the text of proposed section
3281.11(b), which stated that a unit operator is not required to have
an interest in the unit area, was inconsistent with proposed section
3281.10 that stated that the unit operator must have sufficient control
of the unit area. We agree that the proposal may have been unclear and
have made a clarifying change. Under final section 3281.11(b), a unit
operator is not required to have an interest in any leases committed to
the unit agreement. However, as stated at section 3281.10(a)(2), the
BLM will determine if the unit operator has sufficient control of the
leases committed to the unit agreement to effectively develop the
resources occurring in the unit area in the public interest. Such
control may be demonstrated by ownership interests, the terms of the
unit agreement and other relevant documents, or by other appropriate
indicia of control.
Final section 3281.12 explains that owners of geothermal rights and
lease interests committed to the unit are the parties who nominate a
unit operator; however, the BLM must determine if the nominee meets the
qualifications before it designates the unit operator.
Final section 3281.13 addresses the formats or models for unit
agreements. This section allows a unit applicant the flexibility to
create a unit agreement that best matches the specific development
scenario or energy market conditions in an area. The prospective unit
operator can use the model unit agreement in final section 3286.1, the
model with variances noted, or another format that meets the
requirements outlined in the next two final regulatory sections. While
previous regulations at section 3281.1 allowed for variances from a
model unit agreement, the final regulations clearly describe the
information that needs to be in a unit agreement should the applicant
choose not to use the model agreement.
Final section 3281.14(a) is adopted as proposed (with the
modification discussed below). Final section 3281.14(b) was not
contained in the previous rules or the proposed rule, but has been
added for the reasons discussed below. Proposed section 3281.14(b) has
been redesignated and adopted as final section 3281.14(c).
Final 3281.14 does not change previous procedures related to the
required provisions in a unit agreement. Previous regulations required
the unit applicant to determine the minimum requirements of a unit
agreement by following the model agreement. Listing the minimum
requirements and terms for unit agreement should assist applicants in
determining what terms and conditions are required in a unit agreement.
One commenter noted that the term (meaning ``duration,'' for
purposes of this comment) of a unit agreement appears to differ from
the term of a lease. The commenter asserted that the terms should not
conflict, but should be consistent with each other, and that lease
terms should be tied to production like unit terms.
The BLM has made clarifying changes to section 3281.14 in response
to this comment. Except for the proposed model agreement, the proposed
rule did not specify a term for a unit agreement. In the one section of
the proposed rule addressing the issue, proposed section 3281.14(a)(5)
required a unit agreement to specify a term, which the proposed rule
characterized as ``typically 5 years.'' Also, that section of the
proposal did not specify the basis for extending the term of a unit
agreement. Article 18.1 of the proposed model agreement, on the other
hand, unequivocally stated that the term of a unit agreement is in fact
(not just ``typically'') 5 years, and also specifically provided for
extensions. Proposed Article 18.1 specified that unit agreements would
be extended if ``unitized substances are produced or utilized in
commercial quantities, in which event the agreement shall continue for
so long as unitized substances are produced or utilized in commercial
quantities.'' This basis for extension, i.e., tying units to
production, appears to be what the commenter was seeking.
To make the issue clear and eliminate the differences between
proposed section 3281.14(a)(5) and proposed Article 18.1 of the Model
Agreement, the final rule does not include the ``typically 5 years''
language in final section 3281.14(a)(5), but instead adds a new
paragraph (b) to section 3281.14 to clarify the term of a unit and the
bases for extension. Final section 3281.14(b) contains the substance of
Article 18.1 of the Model Agreement. Although repetitive, final Article
18.1 is adopted as proposed so as not to confuse persons relying on the
model agreement.
As to the commenter's concern over the differences in duration
between leases and units, this difference has not caused problems since
the Geothermal Steam Act went into effect in 1970. The initial term of
a unit has always been 5 years since the Geothermal Steam Act was made
effective. There are numerous options for the extension of terms of
either a lease or a unit so that either may remain in effect. By
statute, leases have always had a primary period of 10 years that may
be extended. For instance, once a lease goes into production, the term
of the lease is extended for as long as production continues.
Additionally, as provided at section 3207.17(a), the BLM may extend the
term of a lease to match that of the unit if the lease would expire
prior to the unit (see section 3207.15 for details of production
extensions for leases, and sections 3284.5 and 3284.11, describing how
[[Page 24391]]
unit operations affect lease extensions). The term of the unit may also
be extended further if drilling occurs outside of the participating
area, but inside of the unit area. Because the terms of both a unit and
the terms of the leases located in the participating area are extended
as long as production continues, the different durations of the initial
terms do not cause significant problems.
Final section 3281.15 lists the minimum initial unit obligation
information that the unit agreement must contain. To meet the minimum
initial unit obligation, the unit operator must diligently drill and
complete at least one unit well. The information required by this
section is used to insure that the well is: (1) Located on a tract
committed to the unit agreement; (2) Drilled to the depth or geologic
formation specified in the unit agreement, unless commercial resources
are found at a shallower depth; and (3) Completed within the timeframe
specified in the unit agreement. Depending on the size of the unit, the
BLM can require the drilling of more than one unit well to meet the
minimum initial unit obligation. Since the unit well, by definition,
must be designed to produce or utilize resources in commercial
quantities, the completion of a narrow diameter well can satisfy the
initial obligation only if the well is capable of production in
commercial quantities. The BLM will make this determination on a case-
by-case basis. Other exploration operations, such as drilling
temperature gradient wells, can also be used to satisfy part of the
minimum initial unit obligation.
Final section 3281.16 clarifies the previous practice to submit
Plans of Development for the unit at the time of unit designation, and
for future activities not addressed in a previous Plan of Development.
Plans of Development must be submitted to the BLM for future unit
activities until the time a producible unit well is completed and
begins commercial operations.
Final section 3281.17 describes the information that a unit
operator must include in a Plan of Development. While the scope and
types of activities described in the Plan of Development may vary, a
Plan of Development must include the completion of at least one unit
well.
Final section 3281.18 makes it clear that the BLM will not
designate a unit area until the Plan of Development ensures that unit
activities will meet the public interest requirements.
Final section 3281.19 discusses the BLM's response to a final unit
agreement. In all instances, the BLM's review of a final unit agreement
must conclude that approval of the unit complies with these regulations
and is in the public interest. This section of the final rule also
requires the BLM to coordinate the review of a final unit agreement
with appropriate State and other Federal surface management agencies.
This is consistent with current practice. Under this section the BLM
provides the applicant with written notification of unit rejection or
approval.
Final section 3281.20 establishes the effective date of an
agreement as the first day of the month following the BLM approval. The
unit operator has the option of requesting that the effective date be
the first day of the month in which the BLM approved the agreement, or
a different date if agreed to by the BLM.
Subpart 3282--Participating Areas
Final subpart 3282 defines several procedural requirements
regarding participating areas.
Section 3282.1 of the final rule defines a participating area as
those portions of the unit area the BLM determines: (1) Are reasonably
proven to produce in commercial quantities; or (2) Support production
in commercial quantities such as through pressure support from
injection wells.
Final section 3282.2 explains that commercial operations cannot
begin before the BLM approval of a participating area. This is
necessary to ensure proper allocation of production and royalties
within the unit.
Final section 3282.3 specifies that a unit operator must propose a
participating area the earlier of 30 days before starting commercial
operation, or 60 days after the BLM determines a well will produce or
utilize geothermal resources in commercial quantities.
Final section 3282.4 describes the general information (e.g., maps
showing all tracts and lease information) that the unit operator must
submit to the BLM when applying for a participating area.
Final section 3282.5 describes the technical information (e.g.,
interpretations of well performance and geology documenting the tracts
contributing to production) that the unit operator must submit to the
BLM when applying for a participating area.
Final section 3282.6 specifies the circumstances requiring a unit
operator to apply to revise a participating area boundary. This final
section also allows unit operators to request a delay in modifying
participating area boundaries when active drilling is not complete.
Information on the establishment of an effective date for new or
revised participating areas is contained in final section 3282.7. This
section provides flexibility in establishing the effective date of a
participating area, provided the date is not earlier than the effective
date of the unit agreement.
Final section 3282.8 establishes the following three reasons for
rejection of a revision of a participating area: (1) If the unit
operator does not supply the required information; (2) If the
information does not support approval; or (3) If the revision reduces
the size of the participating area because of resource depletion in a
certain area within the participating area. The third reason is
included as a matter of equity because a lessee should not lose the
benefit of unitization if its resources are depleted before other
resources in the participating area. To provide otherwise would serve
as a disincentive to having a lease's resources developed early in the
life of a participating area.
Final section 3282.9 provides that production must be allocated
equally to all lands in a participating area that are committed to the
unit agreement. For instance, if a lessee owns or controls full
interest in 100 acres within a participating area of 1000 acres, that
lessee will be allocated 10 percent of the production from the
participating area.
Final section 3282.10(a) specifies that unleased Federal lands
located within the participating area receive a proportionate
allocation of production for royalty purposes as if the acreage were
committed to the participating area. Final section 3282.10(b) specifies
that the unit operator is primarily liable for paying, and must pay,
royalty to the United States for the allocated production on these
unleased Federal lands. The phrase ``is primarily liable for paying''
is added as a clarification. The proposed rule established the unit
operator payment obligation, but did not expressly mention liability.
The final rule also clarifies that in the event the unit operator
does not pay any royalties owed for production from unleased Federal
lands, each lessee of lands committed to the participating area is
responsible for paying such royalties in the same proportion as that
lessee's percentage of surface acreage within the participating area,
excluding the unleased acreage. This secondary responsibility imposed
upon the lessees is justified because if the lessees receive benefits
from the resource produced from unleased Federal lands, they should
also retain some responsibility to ensure that royalties are paid to
the United States for such production.
[[Page 24392]]
Proposed section 3282.10(b) would have provided that if the BLM is
not allowed to lease the unleased Federal lands in the participating
area because of restrictions based on planning decisions or other
statutory requirements, the lands would not receive an allocation of
production. The BLM has decided not to adopt proposed section
3282.10(b). The final rule requires that any unleased Federal lands in
the participating area must receive an allocation of production for
royalty purposes. The BLM has concluded that if a unit operator is
draining the resource from unleased Federal lands, payment of a
proportionate royalty to the United States serves the public interest,
regardless of whether the BLM can actually lease the lands. Removal of
the proposed restriction does not open withdrawn lands to leasing or
entry, but assures that the United States will receive a fair return if
federally-owned resources from the unleased lands are produced from
wells on adjoining leases.
One commenter asserted that if a developer has private lands and
needs peripheral stranded Federal lands, he should be allowed to
unitize to include those unleased Federal lands. The BLM agrees that
unleased Federal lands may be included in a geothermal unit and in the
participating area so that drainage from such lands from geothermal
wells on adjoining lands may be considered to be allocated production
from the unit and appropriate payments are made to the United States
under section 3282.10. Although it can receive payments attributable to
production of geothermal resources from unleased Federal lands, the
United States will not be responsible for any portion of the costs of
such production without statutory authorization and appropriation of
funds for that purpose. Moreover, no surface disturbance on or other
entry into the unleased Federal lands may occur without express BLM
authorization separate and apart from approval of the unit and
participating area.
If the unleased Federal lands contain geothermal resources into
which a well needs to be drilled to develop the geothermal resources
fully, a person can attempt to have such lands leased by nominating
such Federal lands to be included in a geothermal lease sale. If the
unleased Federal lands are only necessary for the placement of surface
facilities related to development of geothermal resources on adjacent
leases or tracts, a person can apply to use the Federal surface under
the BLM's right-of-way regulations under 43 CFR part 2800 or for a
lease, permit, or easement under 43 CFR part 2920, whichever is
applicable. However, if the lands are withdrawn or otherwise restricted
from leasing, entry, or surface occupancy, such development and uses of
the lands may not be possible.
Final section 3282.11 explains that the BLM may determine that a
participating area can continue where only intermittent production is
occurring, provided such a determination is in the public interest. The
regulations describe direct use facilities that only utilize geothermal
resources during winter months as an example of intermittent production
that the BLM considers to be in the public interest.
Final section 3282.12 provides that a participating area will
terminate when the unit operator either permanently stops commercial
operations, or 60 days after receiving notification from the BLM that
operations are not being conducted in accordance with the unit
agreement, participating area approval, or the public interest. If the
unit operator can demonstrate that the BLM's reason for termination is
in error or the situation warranting the termination has been
rectified, the BLM may decide not to terminate the participating area.
Subpart 3283--Modifications to the Unit Agreement
Final subpart 3283 establishes how to modify a unit agreement. This
final rule adds new provisions to specify the conditions under which a
unit operator can request an extension of the unit contraction date
and/or a partial contraction of the unit area. Providing this
flexibility for unit administration decisions by the BLM is necessary
since a unit operator can spend substantial amounts of money
discovering commercial resources which cannot be immediately developed
due to conditions beyond the operator's control. An inability to place
portions of a unit into production can subject leases to termination
where either commercial resources have been found or monitoring or
injection wells not directly involved in production are located.
Termination would reduce additional exploration and development in the
unit area, which is contrary to the public interest.
Final section 3283.1 provides that a unit operator can request a
modification of the unit agreement after all unit interests have agreed
to the change in the agreement. After review, the BLM notifies the unit
operator in writing of the BLM's decision and effective date of
approval, if applicable.
Final section 3283.2 discusses circumstances under which the unit
operator can request the BLM to revise contraction provisions of a unit
agreement. Contraction provisions of a unit agreement describe how
lands are removed from the unit agreement as exploration and
development activities determine which lands are not capable of
producing geothermal resources in commercial quantities. Under this
section, an operator can also propose an extension of the unit
contraction date and/or a partial contraction of the unit area. This
section outlines both the information the operator must provide and
information the operator should provide to the BLM in support of a
request to revise contraction provisions of the unit area. The BLM will
approve the request if we determine that revision is in the public
interest. The BLM may also add conditions to the approval such as
requiring an annual renewal or setting the timing and conditions for
when phased contractions or termination of the revision can occur.
Final section 3283.3 addresses how a unit operator will know the
status of a unit contraction revision request. Under the final rule,
the BLM will notify the unit operator in writing of its decision. If
the BLM approves the request, it will specify the term of the
contraction extension and/or which lands will remain in the unit
agreement. The BLM may require the unit operator to update the
information required by final section 3282.3. Also, the BLM could
terminate the participating area contraction revision if, in the public
interest, it finds it necessary to do so.
Final section 3283.4 addresses adding or removing lands from an
agreement when the BLM determines, based on information submitted by
the unit operator, that new or additional geologic information modifies
the basis for the unit boundary. Once the BLM notifies the unit
operator of approval of the revision to the unit, the unit operator
must notify all interest owners in the unit area revision.
Final section 3283.5 implements 30 U.S.C. 1017(f), which requires
review of unit agreements at 5-year intervals to eliminate any lands in
the unit area not necessary for unit operations. A commenter stated
that a requirement for the BLM to review all unit agreements every 5
years is burdensome and potentially unnecessary. The commenter asserted
that, given the BLM's limited resources, this appears to be a poor
allocation of funds, particularly since there does not appear to be any
history of problems to justify this priority. The BLM did not make
changes to the rule based on this comment. The 5-year review
[[Page 24393]]
requirement is necessary to implement a statutory obligation.
Final section 3283.6 describes the purpose of the periodic review,
the basis for eliminating lands from the unit, and the consequences of
elimination on leased lands.
A commenter objected to the standard for eliminating leases from a
geothermal unit. The commenter stated that the term ``not reasonably
necessary'' is too subjective a basis for eliminating lands from a
unit. The commenter requested that the regulation should include
identifiable criteria for making such decisions.
The BLM did not change the rule based on the comment. This standard
in final section 3283.6 comes from the 1988 amendment of the Geothermal
Stream Act, and is the wording the BLM has used in the regulations
since then. The BLM reviews the type and intensity of unit resource
exploration and development to ensure that it is being conducted within
operational and environmental standards and meets public interest
requirements. The BLM is not aware it has caused an issue at any time
when units have been reviewed. The wording is intended to provide the
BLM flexibility in administering units given the broad range of
development issues that may occur. Under the rule, any BLM
determination to eliminate lands from a unit must be based on
scientific evidence, and occur only for the purpose of conserving and
properly managing the geothermal resources. To safeguard against misuse
of this provision, section 3283.6(c) provides that the BLM will not
eliminate any lands from a unit until the unit operator, the lessee,
and any other person with a legal interest in such lands, have been
given reasonable notice and opportunity to comment. The final rule uses
the active voice to clarify that it is the BLM that provides the notice
and opportunity for comment. The proposal was not clear because it used
the passive voice.
Final section 3283.7 provides that unit operators may be changed
only with the BLM's written approval.
Final section 3283.8 describes the requirements for a new operator.
The new operator must meet the qualification requirements of these
regulations, submit evidence of adequate bonding for Federal lands, and
provide to the BLM written acceptance of the unit terms and conditions.
A minor change from the proposal is included in final paragraph (a) to
clarify that the ``qualification'' requirements are the ones to be met.
Final section 3283.9 provides that the change of unit operator is
effective when the BLM approves the new operator in writing.
Final section 3283.10 explains that the initial unit operator
remains responsible for all duties and responsibilities until the BLM
approves the new unit operator. This section also makes it clear that
initial unit operators remain responsible for liabilities and
obligations that accrue before a new unit operator is approved.
Final section 3283.11 acknowledges that a unit agreement does not
modify stipulations in Federal leases. While certain lease obligations
are altered by commitment of lands to a unit, lease stipulations, such
as those designed to protect the environment or other resources, are
not superseded by the terms of a unit agreement.
Final section 3283.12 specifies that transferees and successors in
interest acquiring Federal geothermal leases committed to a unit
agreement are bound by the terms and conditions of the unit agreement.
Subpart 3284--Unit Operations
Final subpart 3284 discusses unit operations, unit operator
responsibilities for those operations, and how the BLM administers
operational situations.
Final section 3284.1 acknowledges current practice that all phases
of unit operations are required to comply with the terms and conditions
of the unit agreement and operational standards and orders identified
in the exploration (subpart 3250), drilling (subpart 3260), and
production and utilization (subpart 3270) subparts of this rule.
Responsibilities of the unit operator are described in final
section 3284.2. In general, the unit operator has primary
responsibility to diligently explore and drill for, and to produce and
inject, unitized geothermal resources. A separate entity can own and
operate utilization facilities located within the unit area, but only
the unit operator is authorized to produce and inject unitized
resources and supply geothermal resources to any utilization
facilities, regardless of whether the location of such facilities is
within the unit. Other working interests are not authorized to conduct
any drilling activities under subpart 3260 on leases committed to a
unit agreement without the BLM approval. The unit operator works with
the BLM and the MMS to make unit changes and must insure all moneys
owed to the Federal Government for geothermal activities are paid.
Final section 3284.3 discusses what happens to the unit agreement
and leases committed to the agreement if the minimum initial unit
obligations are not met and how unit operations can affect extension of
lease terms. If the initial unit well obligations are not met or the
unit operator relinquishes the agreement before meeting the initial
unit obligations, the agreement will be voided as if it was never in
effect, any lease segregations that occurred as a result of unit
formation become invalid, and any extensions issued will be
retroactively voided to the date the unit became effective.
Final section 3284.4 addresses actions necessary to maintain a unit
agreement after a unit well has been completed. If a unit well is
determined by the BLM to be producible, the unit operator must submit a
final participating area application and, if no additional wells are
drilled, the unit area will contract to conform to the participating
area. If a unit well does not produce or utilize geothermal resources
in commercial quantities, the unit operator must continue drilling unit
wells within the time specified in the agreement until a unit well is
completed that the BLM determines produces or utilizes geothermal
resources in commercial quantities. Failure to meet this obligation to
drill subsequent wells results in the unit terminating at that time.
Final section 3284.5 explains how commitment of lands to a unit
agreement affects lease terms. Under final section 3284.5(a), lease
extensions granted based on commitment to the unit agreement remain in
force while the unit is in effect. Under final section 3207.17, a lease
can receive an extension if it was committed to a unit agreement and
would expire prior to the unit term expiring. Therefore, we added a
cross-reference to section 3207.17 in final section 3284.5(a). If the
unit operator has diligently pursued unit development, a lease can
receive an extension to match the term of the unit. Final section
3284.5(b) is adopted as proposed, but corrects a mistaken cross-
reference that was contained in the proposed rule.
Final section 3284.6 addresses drilling done by working interest
owners other than the unit operator. The BLM may approve drilling
outside the participating area only when the BLM determines the unit
operator is not diligently developing the resource and drilling is in
the public interest. Should a working interest owner complete a well
which will produce or utilize geothermal resources in commercial
quantities, the unit operator must apply to include the well in the
participating area and operate the well.
[[Page 24394]]
Final section 3284.7 allows a lessee or operator to conduct
operations on an uncommitted Federal lease located within a unit if the
BLM determines that it is in the public interest and does not
unnecessarily affect unit operations.
Final section 3284.8 establishes that a unit can only have one
operator. Given the nature of most geothermal resources, multiple unit
operators would likely violate the purpose of the unit agreement that
all of the resources within the unit be developed as if they were part
of one operation. If multiple operators of a unit were allowed, then
they could separately develop the resource, the resource would not
necessarily be conserved, and the public interest would not be served.
In effect, the purpose of having a unit would be defeated.
One commenter expressed concern about the possibility of two unit
operators if multiple units exist on overlapping land. As stated
earlier, the BLM will not approve separate unit agreements with
overlapping lands, so that the situation about which the commenter is
concerned will not occur. However, in advance of unit approval,
multiple prospective unit operators may propose a variety of unit
areas. The designation review and final approval process is designed to
insure the unit agreement which is finally made effective by the BLM
best meets public interest requirements.
Final section 3284.9 allows the BLM to set or modify the rate of
production or injection within the unit area to ensure protection of
Federal resources.
One commenter asserted that in a unit, it should be the developer's
choice to direct injection or production rates and that the BLM should
not be in a position to tell how the plant should be operated. The BLM
disagrees with the comment. This provision is essentially unchanged
from the previous regulations, with the exception of the addition of
the qualifying phrase ``to ensure protection of Federal resources.''
The BLM has always had the authority to direct the lessee's injection
or production rates to ensure that the lessee protects Federal
resources. Article 10.5 of the previous model unit agreement specified
that the BLM has the authority to modify the rate of prospecting and
development conducted by the unit operator, as well as the quantity and
rate of production. This authority is necessary to ensure protection
and conservation of the Federal resources. In practice, exercise of
this retained authority has led to few, if any, unresolved disputes.
Final section 3284.10 articulates the unit operator's
responsibility to prevent drainage of the unit area and ensure
compensation (royalties) for drainage of geothermal resources from
unitized land by wells not subject to the unit agreement.
Final section 3284.11 establishes that development and production
from the unit, regardless of location within the unit, fulfills the
diligent development requirements for all leases within the unit.
Final section 3284.12 requires unit operators to notify the BLM
within 30 days of a change in the commitment status of any lease or
tract within the unit, regardless of ownership.
Subpart 3285--Unit Termination
Unit agreement termination is discussed in final subpart 3285.
Final section 3285.1 provides that the BLM may terminate a unit
agreement if the unit operator does not comply with any term or
condition of the unit agreement.
Final section 3285.2 allows a unit operator to request BLM approval
of a voluntary unit agreement termination after the initial unit
obligation well is completed and before starting commercial operations.
This can occur when the appropriate percentage of working interest
owners, as specified in the unit agreement, agree to the termination.
If commercial operations are occurring, the unit will remain in effect
until all commercial operations cease.
Subpart 3286--Model Unit Agreement
Subpart 3286 provides a model unit agreement. Applicants for unit
agreements are not required to use this model (see final section
3281.13). For the most part, the final rule adopts the revisions to the
previous model agreement as proposed. Changes either from the previous
rule or from the proposed rule are discussed below.
Article 1.1 of the final model agreement clarifies that it is the
U.S. Department of the Interior regulations that are accepted,
including both BLM and, where applicable, MMS regulations. Article 1.2
of the final model agreement clarifies that BLM operating regulations
are accepted for non-federal lands within the unit and are made part of
the unit agreement. The proposed model agreement did not expressly
identify which agency's rules were accepted. The BLM views this as a
non-substantive change because it is a clarification of what was
intended in both the previous and proposed rules.
This rule adopts several revisions to Articles IV and XI of the
previous model unit agreement. In these Articles, the previous model
agreement referred to a ``Plan of Operation.'' The term ``Plan of
Development'' is used in the final model agreement, instead, to replace
Plan of Operation. This change clarifies overall permit application
requirements since a Plan of Operation is part of the well drilling and
testing application (sections 3261.11 and 3261.12), and is not related
to the review of a unit agreement. The requirements of the Plan of
Development are not substantially changed from those of the previous
Plan of Operation.
Article IV of the final unit model agreement addresses automatic
contraction of the participating area. Under Article IV, unitized lands
that are not entitled to be within a participating area on the fifth
anniversary of the effective date of the initial participating area are
eliminated automatically from the unit agreement effective as of the
fifth anniversary, with one exception. Under the exception, lands are
not automatically eliminated from the unit agreement if diligent
drilling operations are in progress on an exploratory well on the fifth
anniversary. Under such circumstances, the lands covered by the
exploratory drilling are not eliminated from the unit area for as long
as exploratory drilling operations are continued diligently, with not
more than 6 months elapsing between the completion of one exploratory
well and the commencement of the next exploratory well. The previous
rule required the unit to contract to the participating area if no more
than 4 months, rather than 6 months, elapsed between exploratory wells.
The expansion from 4 months to 6 months is referenced in a number of
places in Article IV of the Model Agreement in the final rule.
Expansion of this time frame to 6 months before contraction occurs
provides the unit operator with greater flexibility, particularly when
attempting to obtain drilling equipment. In addition, Article 4.6
provides that the BLM can authorize a specified time period in excess
of 6 months between the completion of one exploratory well and the
beginning of another without elimination of lands from the unit.
An editorial change from the proposed rule was made in final
Article 4.7 to insert a word that was missing from the proposed rule.
We are adopting several modifications to previous Article XI. A
unit operator was previously required to initiate drilling an
exploratory well within 6 months after the effective date of the unit
agreement. This rule modifies this requirement to allow the unit
operator to conduct exploration operations as well as drilling a well
to meet unit diligent development requirements. A
[[Page 24395]]
unit operator must complete at least one unit exploration well before
the end of the term of the unit agreement or the unit will be voided
and leases will not receive any benefit of unit commitment. Article XI
of the previous model agreement specified that the BLM can only grant a
single extension of drilling obligations of no longer than 4 months.
The final rule modifies the model to allow the BLM to grant multiple
extensions of time frames to meet public interest requirements. This
greater flexibility in unit administration is needed to cover a wide
variety of development issues facing unit operators that are beyond
their control. Language in Articles 11.5 and 11.7 referring to the
``actual production of unitized substances'' is changed to ``completing
a well capable of producing or utilizing unitized substances in
commercial quantities.'' This change allows the minimum initial unit
obligation to be met either through the timely completion of a
producible unit well or the initiation of actual production of unitized
resources.
The final rule substantially shortens Article XV of the model
agreement, related to rents and royalties. Final Article XV does not
repeat substantive regulatory requirements related to rentals,
royalties, rental credits, etc., which are addressed in final subpart
3211. This is not intended as a substantive change because these
matters are addressed fully in both the BLM and the MMS rules (see,
e.g., 43 CFR subpart 3211 and 30 CFR part 306, subpart H, and 30 CFR
318.303) and in the applicable lease instruments themselves. The key
point that both the proposed and final Article XV contain is that
nothing in the model agreement operates to relieve the lessees of any
land from their respective lease obligations for the payment of any
rental or royalty due under their leases. Repeating the requirements in
the model agreement would have been complex because geothermal units
can consist of leases subject to different rental and royalty terms. A
restatement in Article XV might not have been complete or accurate.
Final Article XV retains Article 15.1 from the previous and proposed
model agreements related to unitized leases on non-Federal land. Final
Article 15.3 also states, as was contained in proposed Articles 15.3
and 15.5, that rentals and royalties may be paid by working interest
owners or by a unit operator.
Final Article 17.7 has been modified from the proposal to reflect
that lease extensions occur through ``regulation'' as well as by
``law.'' A sentence has been added to that Article stating that the BLM
has adopted a procedure in final section 3207.17 for granting lease
extensions for leases committed to a unit to match the term of the
unit. The sentence provides that if it is appropriate for the BLM to
extend the term of a lease to match the term of the unit, the unit
operator shall take the actions required for such extension under 43
CFR 3207.17. Under that section, the unit operator must send the BLM a
request to extend the term of a lease committed to a unit at least 60
days before the lease expires.
We are also adopting editorial revisions to the model agreement.
For instance, references in the previous model agreement to the
``Director'' are changed to the ``Authorized Officer,'' the person
within the BLM with the authority to make final decisions.
We are removing the following sections in subpart 3286 because the
BLM does not require submission of information in the specified formats
and the information contained in these sections is found elsewhere in
the final rule: section 3286.1-1 Model Exhibit ``A''; section 3286.1-2
Model Exhibit ``B''; section 3286.2 Model unit bond; section 3286.3
Model designation of successor operator; and section 3286.4 Model
change of operator by assignment.
Subpart 3287--Relief and Appeals
This subpart addresses situations where unit operators seek relief
from the obligations of the unit agreement and wish to appeal a BLM
decision under this part.
Final section 3287.1 allows a unit operator to request a suspension
of any or all obligations under the unit agreement.
Final section 3287.2 lists the circumstances that may warrant the
granting of a suspension of unit obligations. Typically they include
situations beyond the unit operator's control, such as accidents, labor
strikes, or Acts of God. Under this provision, the BLM can decide not
to grant a suspension of unit obligations, especially the minimum
initial obligation, when lengthy or indefinite periods of time are
involved. For example, the BLM might not approve a suspension of
minimum initial drilling obligations due to a unit operator's inability
to obtain an electrical sales contract or when poor economics affect
the electrical generation market, limiting the opportunity to obtain
viable sales contracts.
Final section 3287.3 describes how a suspension of unit obligations
affects the terms of the unit agreement. This section explains that the
BLM has the discretion to toll certain provisions of the unit agreement
while allowing others to remain in effect. The BLM specifies the terms
of the suspension. The rule obligates the unit operator to notify all
interests in the agreement of any suspension that is granted and the
terms of the suspension. The wording of the final notification
provision has been changed from the proposed rule to clarify that unit
interests are to be notified of any suspension granted, and not just of
changes in unit agreement obligations.
Final section 3287.4 allows a unit operator to appeal decisions the
BLM makes regarding unit agreement administration or operations.
IV. Procedural Matters
Effective Date
This rule becomes effective 30 days following publication, rather
than 60 days, because the Department and the Geothermal Industry are
interested in having competitive geothermal lease sales as soon as
possible. Lease sales cannot be held until these rules become effective
because it is these rules that prescribe key terms and conditions of
new leases, such as royalty rates and rentals. In addition, the statute
authorizes 2 year extensions of leases issued before August 8, 2005
that were within 2 years of the end of their terms on August 8, 2005.
Having this rule become effective sooner will assure that lessees of
such leases will have sufficient time to apply for any necessary
extensions.
Executive Order 12866, Regulatory Planning and Review
This final rule will not have an effect of $100 million or more on
the economy. It will not adversely affect in a material way the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local, or tribal governments or
communities. The regulatory changes in the nomination and leasing
process, royalty system, and diligence requirements are the only
provisions in the rule with potential economic impacts. However, as
explained in the Regulatory Flexibility Act Threshold Analysis that
follows, the royalty provisions are intended to be revenue-neutral
program-wide for the next 10 years, and should not have any significant
economic impact.
These regulations will not create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency.
This rule does not change the relationships of the geothermal program
with other
[[Page 24396]]
agencies' actions. These relationships are included in agreements and
memoranda of understanding that would not change with this rule. We
coordinated closely with the MMS in preparing the rule.
These regulations do not alter the budgetary effects of
entitlements, grants, user fees, or loan programs or the right or
obligations of their recipients; nor do they raise novel legal or
policy issues.
Regulatory Flexibility Act
This rule will not have a significant economic effect on a
substantial number of small entities as defined under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) (RFA). The Threshold Analysis
under the RFA follows.
The U.S. Census Bureau does not identify the geothermal industry as
a discrete industrial classification. Instead, firms involved in
exploration and development of geothermal resources are included within
other categories. For example, geothermal drilling is grouped with
water well drilling; firms involved in the distribution of steam are
included with steam and air-conditioning suppliers; and firms
generating electricity from geothermal resources are grouped in an
Other Electric Power Generation category. As a result, there is no
practical way to use the U.S. Census Data to calculate the number of
entities involved in the domestic geothermal industry.
As of September 30, 2004, there were 259 noncompetitive Federal
leases covering 364,506 acres in Arizona, California, Idaho, Nevada,
Oregon, and Utah. Almost 300,000 of those acres are located in Nevada.
There were also 140 competitive leases covering 186,683 acres in
California, Nevada, New Mexico, Oregon and Utah. Approximately 170,000
of those leased acres are located in California and Nevada.
Although this rule will only affect entities involved in the
exploration and development of energy and mineral resources from land
where the geothermal resources are administered by the BLM, there is no
practical way to determine which of these firms will hold leases or
operate on Federal lands in the future. The extent to which any firm is
actually affected by this rule depends on whether it holds leases or
operates on Federal lands.
The Small Business Administration (SBA) defines small entities
involved in the geothermal industry as individuals, limited
partnerships, or small companies considered at ``arm's length'' from
the control of any parent companies, with fewer than 500 employees.
U.S. Census data on firms by number of employees is not available.
However, based on interviews of the BLM specialists involved in
geothermal leasing activity and several industry representatives, and
reviews of company reports, there appears to be only one known firm
currently operating on Federal lands with more than 500 employees.
Based on available information, the preponderance of firms involved
in geothermal resource exploration and development on Federal lands are
small entities as defined by SBA. Therefore, it is reasonable to
conclude that this rule will affect a ``substantial number of small
entities.''
The regulatory changes in the nomination and leasing process,
royalty system, and diligence requirements are the only provisions in
the rule with potential economic impacts. However, the royalty
provisions are intended to be revenue-neutral program-wide and should
not have any net economic impact. The nomination filing fee is $100 per
nomination, plus 10 cents for each acre of land nominated for
competitive sale. This fee will have a negative financial impact on
lessees, including small entities. The BLM is authorized to charge
reasonable filing fees under Section 304(a) of the Federal Land Policy
and Management Act of 1976, 43 U.S.C. 1734(a). While our general policy
is to charge a processing fee that recovers the agency's reasonable
processing cost, the BLM does not have data on our cost of processing
nominations. In 2004, the BLM issued 29 competitive and noncompetitive
geothermal leases, covering 45,706 acres. With the fees, the cost of
acquiring those leases would have been increased by $2,900 due to the
fixed nomination fee, and $4,570.60 due to the per acre fee, or an
average of about $250 per lease. This nominal filing fee is not
intended to reimburse the government for its processing costs, but
instead to limit filings to serious applicants. We do not expect the
fee to lead to any reduction in the number of serious applicants.
Therefore, we do not anticipate any measurable reduction in economic
activity due to the regulations.
The regulations are intended to implement provisions of the Energy
Policy Act related to geothermal leasing. Those provisions in the
Energy Policy Act are primarily intended to promote the exploration and
development of geothermal resources on Federal lands.
The annual effect on the economy of the regulatory changes is less
than $100 million, as shown earlier in this section, and will not
adversely affect in a material way the economy, a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or state, local or tribal governments or communities.
This rule will not create inconsistencies or otherwise interfere with
an action taken or planned by another agency, also as discussed
earlier. This rule does not change the relationships of the geothermal
program with other agencies' actions. These relationships are included
in agreements and memoranda of understanding that would not change with
this rule. In addition, this rule does not materially affect the
budgetary impacts of entitlements, grants, user fees, loan programs, or
the rights and obligations of their recipients.
Therefore, the BLM has determined under the RFA that this rule will
not have a significant economic impact on a substantial number of small
entities.
Small Business Regulatory Enforcement Fairness Act
This rule is not a major rule under 5 U.S.C. 804(2), the Small
Business Regulatory Enforcement Fairness Act. That is, it would not
have an annual effect on the economy of $100 million or more; it would
not result in major cost or price increases for consumers, industries,
government agencies, or regions; and it would not have significant
adverse effects on competition, employment, investment, productivity,
innovation, or the ability of U.S.-based enterprises to compete with
foreign-based enterprises. See the Executive Order 12866 and RFA
discussions, above.
Unfunded Mandates Reform Act
In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501,
et seq.): This rule does not impose an unfunded mandate on state,
local, or tribal governments or the private sector, in the aggregate,
of $100 million or more per year; nor does this rule have a significant
or unique effect on state, local, or tribal governments. The rule would
impose no requirements on any of these entities. We have already shown,
in the previous discussions and in the RFA threshold analysis, that the
changes this rule makes will not have effects approaching $100 million
per year on the private sector. Therefore, the BLM is not required to
prepare a statement containing the information required by the Unfunded
Mandates Reform Act (2 U.S.C. 1531 et seq.).
[[Page 24397]]
Executive Order 12630, Government Actions and Interference With
Constitutionally Protected Property Rights (Takings)
The final rule is not a government action capable of interfering
with constitutionally protected property rights. A takings implication
assessment is not required, since the rule is essentially
administrative and does not authorize any specific activities that
would result in any effects on private property. Therefore, the
Department of the Interior has determined that the rule would not cause
a taking of private property or require further discussion of takings
implications under this Executive Order.
Executive Order 13132, Federalism
The final rule will not have a substantial direct effect on the
states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
levels of government. It would not apply to states or local governments
or state or local governmental entities. The management of Federal
geothermal leases is the responsibility of the Secretary of the
Interior. This rule does not alter any lease management or revenue
sharing provisions with the states, nor does it impose any costs to the
states. Therefore, in accordance with Executive Order 13132, the BLM
has determined that this rule does not have sufficient Federalism
implications to warrant preparation of a Federalism Assessment.
Executive Order 12988, Civil Justice Reform
Under Executive Order 12988, we have determined that this rule
would not unduly burden the judicial system and that it meets the
requirements of sections 3(a) and 3(b)(2) of the Order.
Paperwork Reduction Act
As required by the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.
3507(d)), the BLM submitted a copy of the new reporting or
recordkeeping requirements to the Office of Management and Budget (OMB)
for review. The BLM will not require collection of this information
until the OMB has given its approval. The OMB has approved information
collection requirements under OMB control numbers 1004-0074 which
expires December 31, 2009, and 1004-0132 which expires March 31, 2007.
At the OMB's request, the BLM is in the process of combining
information collection 1004-0074 and ICR Reference Number 200607-1004-
001 into information collection 1004-0132.
National Environmental Policy Act
The BLM has prepared an environmental assessment (EA) and has found
that the rule would not constitute a major Federal action significantly
affecting the quality of the human environment under Section 102(2)(C)
of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C.
4332(2)(C). The rule has no direct effect on BLM environmental
activities and decisions. It deals primarily with changes in the
leasing procedures and royalty provisions of the existing regulations.
The rule will not change operational standards which regulate on the
ground impacts. Therefore, an environmental impact statement is not
required.
Executive Order 13175, Consultation and Coordination With Indian Tribal
Governments
In accordance with Executive Order 13175, we have found that this
rule may include policies that have tribal implications. The rule would
make changes in the Federal geothermal leasing and management program,
which does not apply on Indian tribal lands. At present, there are no
geothermal leases or agreements on tribal or allotted Indian lands. If
the Bureau of Indian Affairs should ever issue any leases or
agreements, the BLM would then likely be responsible for the approval
of any such proposed operations on all Indian (except Osage) geothermal
leases and agreements. In light of this possibility, and because tribal
interests could be implicated in geothermal leasing on Federal lands,
the BLM contacted over 299 tribes who could potentially be impacted by
this rule. We received only one response from a tribal representative,
who requested that they be contacted upon publication of the final
rule, but otherwise received no comments from Tribes on the rule.
Executive Order 13211, Actions Concerning Regulation That Significantly
Affect Energy Supply, Distribution, or Use
In accordance with Executive Order 13211, the BLM has determined
that the rule is not likely to have a significant adverse effect on the
supply, distribution, or use of energy. The changes could result in an
increase in geothermal leasing and development, but any potential
increases are only speculative. If geothermal leasing and development
did increase, that would likely have a positive effect on energy
supply.
Executive Order 13352--Facilitation of Cooperative Conservation
In accordance with Executive Order 13352, the BLM has determined
that this final rule will not impede facilitating cooperative
conservation; takes appropriate account of and considers the interests
of persons with ownership or other legally recognized interests in land
or other natural resources; properly accommodates local participation
in the Federal decision-making process; and provides that the programs,
projects, and activities are consistent with protecting public health
and safety. The changes are essentially administrative in nature and
will not have a bearing on cooperative conservation issues.
Regulatory Flexibility Act Threshold Analysis
Introduction
The Regulatory Flexibility Act (RFA) requires agencies to analyze
the economic impact of proposed and final regulations and determine the
extent to which there is a significant economic impact on a substantial
number of small entities, and to consider regulatory alternatives that
would achieve the agency's goal while minimizing the burden on small
entities. The RFA establishes an analytical process for determining how
public policy goals can best be achieved without erecting barriers to
competition, stifling innovation, or imposing undue burdens on small
entities. Executive Order 13272 reinforces executive intent that
agencies give serious attention to impacts on small entities and
develop regulatory alternatives to reduce the regulatory burden on
small entities. To meet these requirements, the agency must either
conduct a regulatory flexibility analysis or certify that the final
rule will not have ``a significant economic impact on a substantial
number of small entities.''
Number of Potentially Affected Entities
Entities that will be directly affected by this Geothermal Resource
Leasing rule will include most, if not all, firms involved in the
exploration and development of geothermal resources on Federal lands.
Such operators are a subset of entities involved in the domestic
geothermal industry.
The U.S. Census Bureau does not identify the geothermal industry as
a discrete industrial classification. Instead firms involved in
exploration and development of geothermal resources are included within
other categories. For example, geothermal drilling is grouped with
water well drilling; firms involved in the distribution of steam are
[[Page 24398]]
included with steam and air-conditioning suppliers; and firms
generating electricity from geothermal resources are grouped in an
``Other Electric Power Generation'' category. Therefore, there is no
practical way to use the U.S. Census Data to calculate the number of
entities involved in the domestic geothermal industry.
There are a limited number of entities that currently hold Federal
geothermal leases. As of May 19, 2006,\1\ there were 69 different
geothermal lessees identified; however, many of these lessees are
composed of the same firms, individuals, and partnerships.
---------------------------------------------------------------------------
\1\ U.S. Department of the Interior, Bureau of Land Management,
LR2000, June 1, 2006.
---------------------------------------------------------------------------
The latest published Public Land Statistics \2\ data indicates
there were 259 noncompetitive leases covering 364,506 acres in Arizona,
California, Idaho, Nevada, Oregon and Utah. Almost 300,000 of those
acres are located in Nevada. There were also 140 competitive leases
covering 186,683 acres in California, Nevada, New Mexico, Oregon, and
Utah. Approximately 170,000 of those leased acres are located in
California and Nevada. During FY2004, 24 non-competitive geothermal
leases were issued covering 37,453 acres, along with 5 competitive
leases covering 8,253 acres.
---------------------------------------------------------------------------
\2\ U.S. Department of the Interior, Bureau of Land Management,
Public Land Statistics 2004, (http://www.blm.gov/natacq/pls04/).
---------------------------------------------------------------------------
Geothermal leases are issued with a primary term of 10 years. After
the primary term the lease may be extended twice for up to 5 years each
time. Currently there are 29,801 leased acres in non-producing status
that have been under lease for 11 to 15 years, and another 107,335
acres that have been under lease for 16 to 19 years.\3\
---------------------------------------------------------------------------
\3\ U.S. Department of the Interior, Bureau of Land Management,
LR2000, June 1, 2006.
---------------------------------------------------------------------------
Although this rule will only affect entities involved in the
exploration and development of geothermal resources administered by the
BLM, there is no way to determine which firms will hold leases or
operate on Federal lands in the future. The extent to which the final
rule has an actual impact on any firm depends on whether it holds
leases or operates on Federal lands.
Impacted Small Entities
The Small Business Administration (SBA) has developed size
standards to carry out the purposes of the Small Business Act; those
size standards can be found in 13 CFR 121.201. The SBA defines small
entities involved in the geothermal industry as individuals, limited
partnerships, or small companies considered at ``arm's length'' from
the control of any parent companies, with fewer than 500 employees.
U.S. Census data on firms by number of employees is not available.
However, based on interviews of BLM specialists \4\ involved in
geothermal leasing activity and several industry representatives, and
reviews of company reports, there appears to be only one known firm
currently operating on Federal lands with more than 500 employees.
---------------------------------------------------------------------------
\4\ BLM contacts included Richard Estabrook (CA), Rich Hoops
(NV), Sean Hagerty (CA), Donna Kauffman (OR), Connie Seare, (Utah)
and Gloria Baca (NM).
---------------------------------------------------------------------------
Based on available information, the preponderance of firms involved
in geothermal resource exploration and development on Federal lands are
small entities as defined by SBA. Therefore, it is reasonable to
conclude that this rule will impact a ``substantial number of small
entities.''
Direct Economic Impacts
The changes to the geothermal rule fall into a number of different
areas: competitive and noncompetitive leasing, direct use leases,
royalties and rentals, lease terms and conditions, unit and
communitization agreements, acreage limitations, and termination
provisions. However, most of the new provisions in the final rule are
specifically required by the Energy Policy Act of 2005.
A major concern voiced by some industry representatives regarding
the pending changes is that the requirement in the Energy Policy Act
eliminated the process of applying for noncompetitive leases directly
to BLM and required all leases to be offered competitively. The concern
is that this provision will limit future exploration and development on
Federal lands, and decrease competition within the industry. Their
position is that noncompetitive leasing promotes innovation and the
exploration of undeveloped resources. These concerns are worth noting;
however, the requirement that all leases must first be offered
competitively is included in the rule because it is a requirement of
the law.
This final rule provides for the following:
All parcels may be leased competitively for no minimum
bid;
Royalties for most new leases will be a percentage of
gross proceeds;
When lessees elect to convert existing leases to leases
administered under these final regulations, royalty rates will be
determined on a case-by-case basis to obtain revenue neutrality;
Nominations for competitive leasing will be charged filing
fees;
Minimum dollar amounts will be set for the work commitment
requirements and payments in lieu of work expenditures; and
Near-term production incentives will be provided.
Impact Significance
In addition to determining if a substantial number of small
entities are likely to be affected by this final rule, the BLM must
also determine whether the rule is anticipated to have a significant
economic impact on those small entities. The RFA does not define
``significant.'' However, significance should be seen as relative to
the size of the business, the size of the competitor's business, and
the impact the regulation has on larger competitors.
Royalty--The Energy Policy Act requires that the royalty on
production from all future geothermal leases be a gross proceeds
royalty. Based on a report \5\ prepared for the Minerals Management
Service (MMS) on geothermal royalty valuation methods and a study \6\
prepared by Advanced Resources International, Inc., for the BLM, this
final rule implements a gross proceeds lease royalty of 1.75% for years
1 through 10 and 3.5% after year 10 for all future leases. This change
is within the parameters mandated by the Energy Policy Act.
---------------------------------------------------------------------------
\5\ Royalty Policy Committee, Geothermal Valuation Subcommittee
Report, May 2005.
\6\ Advanced Resources International, Inc., Geothermal
Development on Federal Lands: Projection of Royalty Impacts
Resulting from the Energy Policy Act of 2005, January 21, 2007.
---------------------------------------------------------------------------
The Act also requires that for converted leases the royalty must be
revenue neutral, i.e., the royalty rate applied to gross proceeds will
generate no more (or less) revenue than the previous net proceeds
royalty would generate if applied to those same leases.
The Act also requires that charges for direct use of the geothermal
resource be based on a fee schedule rather than a royalty. The MMS
developed the fee schedule for direct use, and it is included in the
MMS rule that is being finalized simultaneously with this BLM rule.
Current electrical generation lessees that remain under the
previous regulations will pay the same royalties as they have been
paying all along. Electrical generation lessees who modify their
existing leases to the new regulation's percentage of gross proceeds
method should pay the same level of royalties as they have paid under
the previous regulations.
[[Page 24399]]
Program wide, the royalty rates for new electric generation lessees
(1.75% for years 1 through 10 and 3.5% after year 10) should result in
the same overall level of royalties as they would have paid under the
previous regulations. Under the new royalty scheme, new electric
generation lessees that use binary power plant technology will be
subject to a royalty rate that is approximately 1% higher than the
effective royalty rate under the previous regulations. Operations that
employ flash technology will be subject to a royalty rate that is
almost 2% lower than the previous effective royalty rate for that type
of power generation plants.
Lessees that currently use the resource only for direct use and do
not sell the resource will have the option to convert their leases to
the new fee schedule, which is expected to result in a reduction of
$60,000 per year from the previous level of royalties, a 95-percent
reduction. In addition, all new direct use lessees who do not sell the
resources under the new regulations will use the same fee schedule,
also paying about 95 percent less than they would have under the
previous regulations. The MMS has estimated that the royalty changes
will result in royalty decreases for the industry as a result of the
lower fees for direct use.
It should be noted that likely the most significant effect
associated with changes in the royalty scheme are the accounting
savings by converting from a netback to a gross proceeds royalty. This
savings will be most pronounced for small entities that do not have a
full time accounting department.
Filing Fees--The nomination filing fee of $100 per nomination plus
a $0.10 per acre fee will have a minor negative financial impact on
lessees, including small entities. Based on Public Land Statistics data
\7\, 29 competitive and noncompetitive geothermal leases, covering
45,706 acres, were issued in 2004. With the fees, the cost of acquiring
those leases would have been increased by $2,900 by the fixed
nomination fee and $4,570.60 by the per acre fee, or an average cost of
about $250 per lease. It is highly unlikely that cost increases of this
magnitude will prevent operators from obtaining leases on lands they
are interested in exploring and developing. However, due to the cost of
these fees, operators may tend to minimize their nominations to only
those parcels that they are truly interested in obtaining.
---------------------------------------------------------------------------
\7\ U.S. Department of the Interior, Bureau of Land Management,
Public Land Statistics 2004, (http://www.blm.gov/natacq/pls04/).
---------------------------------------------------------------------------
Work Requirements--The final regulations require the operator to
have made exploration expenditures of at least $40 per acre by the end
of the tenth year. After the tenth year the expenditure requirement
will be $15 per acre per year for years 11 to 15 and $25 per acre per
year for years 16 through 19. The requirement differs from the previous
regulatory requirement of $4 per acre for the 6th year, $6 per acre for
the 7th year, $8 per acre for the 8th year, $10 per acre for the 9th
year, $12 per acre for the 10th year, $15 per acre per year for years
11 through 15, and $18 per acre per year for years 16 through 19.
For the expenditure requirement, the required amount for the first
15 years is essentially the same as the previous requirement. For the
16th through 19th years the expenditure requirement will be 28 percent
higher ($7.00 per acre) than the requirement under the previous
regulations. However, the increase only applies to future Federal
geothermal leases in the years 11 through 19. As discussed below, the
lessees of those future leases could opt to make payments in lieu of
expenditures.
Payment in Lieu of Expenditure--Both sets of regulations allow the
lessee to make payments to the government in lieu of actual work
expenditures. Under the final regulations the payment in lieu of work
expenditures will equal the required expenditure amount; $40 per acre
by year 10, $15 per acre per year for years 11 through 15, and $25 per
acre per year for years 16 through 19. Under the previous regulations
the payment amount is $3 per year for years six through 15 and $6 per
acre per year after year 15. For lessees, including small entities,
that are not producing or actively developing their leases after the
tenth year, this provision will increase the cost of holding leases.
However, this increase in holding costs will only apply to future
leases issued under the final regulations and those who elect to be
subject to these regulations.
Non-producing leases issued under these final regulations will by
the 16th year of the lease term face higher expenditure and/or payment
in lieu of expenditure requirements. Assuming leasing activity on par
with what occurred in FY 2004, we would have approximately 45,000 acres
leased per year under the final regulations. Assuming no production and
no exploration expenditures on those leases, by the 16th year of those
leases' term the lessees would need to pay the government $315,000 in
payments in lieu of expenditures to hold those leases. This figure
represents a highly unlikely worst case scenario in which all lessees
simply hold on to their leases without ever attempting to explore or
develop the geothermal resources.
Near Term Incentives--The final regulations provide for near term
production incentives for existing leases: There is a 4-year 50 percent
reduction in the royalty for those leases that do not convert, which
applies to new facilities or qualified expansion projects. The
provision will have a positive impact on the lessees of these existing
leases.
Regulatory Analysis
Executive Order 12866, the Unfunded Mandates Reform Act (UMRA), and
the Small Business and Regulatory Flexibility Act (SBRFA) require
agencies to undertake an analysis of the benefits and costs associated
with significant regulatory actions.
The changes in the royalty system, nomination process and diligence
requirements are the regulatory provisions with potential economic
impacts. However, the royalty scheme is intended to be program-wide
revenue-neutral and should not have any net economic impact. The filing
fee will nominally increase the cost of acquiring a lease. Based on
FY2004 data, the filing fee would increase the cost of obtaining a
Federal geothermal lease by an average of $250. The payment in lieu of
expenditure provision will increase the cost of holding future non-
producing Federal geothermal leases beyond the 15th year. As discussed
above, for new leases that are not producing and are not being actively
explored the payment in lieu of expenditure (holding cost) will
increase by $7.00 per acre over the previous requirements. However,
since these leases are neither producing nor being actively developed
it is not anticipated any measurable reduction in economic activity
will occur as a result of the final regulations.
The final regulations are intended to implement certain provisions
found in the Energy Policy Act related to geothermal leasing. Those
provisions in the Act are primarily intended to promote the exploration
and development of geothermal resources on Federal lands.
The annual effect on the economy of the regulatory changes is less
than $100 million and will not adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or state, local, or tribal
governments or communities. This rule will not create inconsistencies
or otherwise interfere with an action taken or planned by another
agency. This rule does not change the relationships of the
[[Page 24400]]
geothermal programs with other agencies' actions. These relationships
are included in agreements and memoranda of understanding that will not
change with this rule. In addition, this rule does not materially
affect the budgetary impact of entitlements, grants, loan programs, or
the rights and obligations of their recipients.
Authors
The principal authors of this final rule are Rich Hoops-BLM Nevada
State Office, Richard Estabrook--BLM Ukiah Field Office, Cheryl Seath--
BLM Bishop Field Office, Sean Hagerty--BLM California State Office, and
assisted by Brenda Aird of the Assistant Secretary's Office, Kermit
Witherbee-National Geothermal Program Manager, BLM's Division of
Regulatory Affairs, and the Office of the Solicitor.
List of Subjects
43 CFR Part 3000
Public lands--mineral resources, Reporting and recordkeeping
requirements.
43 CFR Part 3200
Geothermal energy, Government contracts, Mineral royalties, Public
lands-mineral resources, Reporting and recordkeeping requirements,
Surety bonds, Water resources.
43 CFR Part 3280
Geothermal energy, Government contracts, Public lands-mineral
resources, Reporting and recordkeeping requirements, Surety bonds.
Dated: March 30, 2007.
Julie A Jacobson,
Deputy Assistant Secretary, Land and Minerals Management.
0
Accordingly, for the reasons stated in the preamble and under the
authorities stated below, BLM amends 43 CFR parts 3000, 3200 and 3280
as follows:
PART 3000--MINERALS MANAGEMENT: GENERAL
0
1. The authority citation for part 3000 continues to read as follows:
Authority: 16 U.S.C. 3101 et seq.; 30 U.S.C. 181 et seq., 301-
306, 351-359, and 601 et seq.; 31 U.S.C. 9701; 40 U.S.C. 471 et
seq.; 42 U.S.C. 6508; 43 U.S.C. 1701 et seq.; and Pub. L. 97-35, 95
Stat. 357.
0
2. Amend the table in section 3000.12(a) by adding a new entry under
``Geothermal (Part 3200):'' after ``Lease reinstatement'' as follows:
Sec. 3000.12 What is the fee schedule for fixed fees?
(a) * * *
FY 2006 Processing Fee Table
------------------------------------------------------------------------
Document/action Fees
------------------------------------------------------------------------
* * * * *
Geothermal (Part 3200):
* * * * *
Nomination of lands....................... 100 plus $0.10 per acre of
lands nominated.
------------------------------------------------------------------------
0
3. Revise part 3200 to read as follows:
PART 3200--GEOTHERMAL RESOURCE LEASING
Subpart 3200--Geothermal Resource Leasing
Sec.
3200.1 Definitions.
3200.3 Changes in agency duties.
3200.4 What requirements must I comply with when taking any actions
or conducting any operations under this part?
3200.5 What are my rights of appeal?
3200.6 What types of geothermal leases will BLM issue?
3200.7 What regulations apply to geothermal leases issued before
August 8, 2005?
3200.8 What regulations apply to leases issued in response to
applications pending on August 8, 2005?
Subpart 3201--Available Lands
3201.10 What lands are available for geothermal leasing?
3201.11 What lands are not available for geothermal leasing?
Subpart 3202--Lessee Qualifications
3202.10 Who may hold a geothermal lease?
3202.11 Must I prove I am qualified to hold a lease when filing an
application to lease?
3202.12 Are other persons allowed to act on my behalf to file an
application to lease?
3202.13 What happens if the applicant dies before the lease is
issued?
Subpart 3203--Competitive Leasing
3203.5 What is the general process for obtaining a geothermal lease?
3203.10 How are lands included in a competitive sale?
3203.11 Under what circumstances may parcels be offered as a block
for competitive sale?
3203.12 What fees must I pay to nominate lands?
3203.13 How often will BLM hold a competitive lease sale?
3203.14 How will BLM provide notice of a competitive lease sale?
3203.15 How does BLM conduct a competitive lease sale?
3203.17 How must I make payments if I am the successful bidder?
3203.18 What happens to parcels that receive no bids at a
competitive lease sale?
Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases
3204.05 How can I obtain a noncompetitive lease?
3204.10 What payment must I submit with my noncompetitive lease
application?
3204.11 How may I acquire a noncompetitive lease for lands that were
not sold at a competitive lease sale?
3204.12 How may I acquire a noncompetitive lease for lands subject
to a mining claim?
3204.13 How will BLM process noncompetitive lease applications
pending on August 8, 2005?
3204.14 May I amend my application for a noncompetitive lease?
3204.15 May I withdraw my application for a noncompetitive lease?
Subpart 3205--Direct Use Leasing
3205.6 When may BLM issue a direct use lease to an applicant?
3205.7 How much acreage should I apply for in a direct use lease?
3205.10 How do I obtain a direct use lease?
3205.12 How will BLM respond to direct use lease applications on
lands managed by another agency?
3205.13 May I withdraw my application for a direct use lease?
3205.14 May I amend my application for a direct use lease?
3205.15 How will I know whether my direct use lease will be issued?
Subpart 3206--Lease Issuance
3206.10 What must I do for BLM to issue a lease?
3206.11 What must BLM do before issuing a lease?
3206.12 What are the minimum and maximum lease sizes?
3206.13 What is the maximum acreage I may hold?
3206.14 How does BLM compute acreage holdings?
3206.15 How will BLM charge acreage holdings if the United States
owns only a fractional interest in the geothermal resources in a
lease?
3206.16 Is there any acreage which is not chargeable?
3206.17 What will BLM do if my holdings exceed the maximum acreage
limits?
3206.18 When will BLM issue my lease?
Subpart 3207--Lease Terms and Extensions
3207.5 What terms (time periods) apply to my lease?
3207.10 What is the primary term of my lease?
3207.11 What work am I required to perform during the first 10 years
of my lease for BLM to grant the initial extension of the primary
term of my lease?
3207.12 What work am I required to perform each year for BLM to
continue the initial and additional extensions of the primary term
of my lease?
[[Page 24401]]
3207.13 Must I comply with the requirements of Sec. Sec. 3207.11
and 3207.12 when my lease overlies a mining claim?
3207.14 How do I qualify for a drilling extension?
3207.15 How do I qualify for a production extension?
3207.16 When may my lease be renewed?
3207.17 How is the term of my lease affected by commitment to a
unit?
3207.18 Can my lease be extended if it is eliminated from a unit?
Subpart 3210--Additional Lease Information
3210.10 When does lease segregation occur?
3210.11 Does a lease segregated from an agreement or plan receive
any benefits from unitization of the committed portion of the
original lease?
3210.12 May I consolidate leases?
3210.13 Who may lease or locate other minerals on the same lands as
my geothermal lease?
3210.14 May BLM readjust the terms and conditions in my lease?
3210.15 What if I appeal BLM's decision to readjust my lease terms?
3210.16 How must I prevent drainage of geothermal resources from my
lease?
3210.17 What will BLM do if I do not protect my lease from drainage?
Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees, and
Royalties
3211.10 What are the processing and filing fees for leases?
3211.11 What are the annual lease rental rates?
3211.12 How and where do I pay my rent?
3211.13 When is my annual rental payment due?
3211.14 Will I always pay rent on my lease?
3211.15 How do I credit rent towards royalty?
3211.16 Can I credit rent towards direct use fees?
3211.17 What is the royalty rate on geothermal resources produced
from or attributable to my lease that are used for commercial
generation of electricity?
3211.18 What is the royalty rate on geothermal resource produced
from or attributable to my lease that are used directly for purposes
other than commercial generation of electricity?
3211.19 What is the royalty rate on byproducts derived from
geothermal resources produced from or attributable to my lease?
3211.20 How do I credit advanced royalty towards royalty?
3211.21 When do I owe minimum royalty?
Subpart 3212--Lease Suspensions, Cessation of Production, Royalty Rate
Reductions, and Energy Policy Act Royalty Rate Conversions
3212.10 What is the difference between a suspension of operations
and production and a suspension of operations?
3212.11 How do I obtain a suspension of operations or a suspension
of operations and production on my lease?
3212.12 How long does a suspension of operations or a suspension of
operations and production last?
3212.13 How does a suspension affect my lease term and obligations?
3212.14 What happens when the suspension ends?
3212.15 Will my lease remain in full force and effect if I cease
production and I do not have an approved suspension?
3212.16 Can I apply to BLM to reduce, suspend, or waive the royalty
or rental of my lease?
3212.17 What information must I submit when I request that BLM
suspend, reduce, or waive my royalty or rental?
3212.18 What are the production incentives for leases?
3212.19 How do I apply for a production incentive?
3212.20 How will BLM review my request for a production incentive?
3212.21 What criteria establish a qualified expansion project for
the purpose of obtaining a production incentive?
3212.22 What criteria establish a new facility for the purpose of
obtaining a production incentive?
3212.23 How will the production incentive apply to a qualified
expansion project?
3212.24 How will the production incentive apply to a new facility?
3212.25 Can I convert the royalty rate terms of my lease in effect
before August 8, 2005, to the terms of the Geothermal Steam Act, as
amended by the Energy Policy Act of 2005?
3212.26 How do I submit a request to modify the royalty rate terms
of my lease to the applicable terms prescribed in the Energy Policy
Act of 2005?
3212.27 How will BLM or MMS review my request to modify the lease
royalty rate terms?
Subpart 3213--Relinquishment, Termination, and Cancellation
3213.10 Who may relinquish a lease?
3213.11 What must I do to relinquish a lease?
3213.12 May BLM accept a partial relinquishment if it will reduce my
lease to less than 640 acres?
3213.13 When does relinquishment take effect?
3213.14 Will BLM terminate my lease if I do not pay my rent on time?
3213.15 How will BLM notify me if it terminates my lease?
3213.16 May BLM cancel my lease?
3213.17 May BLM terminate my lease for reasons other than non-
payment of rentals?
3213.18 When is a termination effective?
3213.19 What can I do if BLM notifies me that my lease is being
terminated because of a violation of the law, regulations, or lease
terms?
Subpart 3214--Personal and Surety Bonds
3214.10 Who must post a geothermal bond?
3214.11 Who must my bond cover?
3214.12 What activities must my bond cover?
3214.13 What is the minimum dollar amount required for a bond?
3214.14 May BLM increase the bond amount above the minimum?
3214.15 What kind of financial guarantee will BLM accept to back my
bond?
3214.16 Is there a special bond form I must use?
3214.17 Where must I submit my bond?
3214.18 Who will BLM hold liable under the lease and what are they
liable for?
3214.19 What are my bonding requirements when a lease interest is
transferred to me?
3214.20 How do I modify my bond?
3214.21 What must I do if I want to use a certificate of deposit to
back my bond?
3214.22 What must I do if I want to use a letter of credit to back
my bond?
Subpart 3215--Bond Release, Termination, and Collection
3215.10 When may BLM collect against my bond?
3215.11 Must I replace my bond after BLM collects against it?
3215.12 What will BLM do if I do not restore the face amount or file
a new bond?
3215.13 Will BLM terminate or release my bond?
3215.14 When BLM releases my bond, does that end my
responsibilities?
Subpart 3216--Transfers
3216.10 What types of lease interests may I transfer?
3216.11 Where must I file a transfer request?
3216.12 When does a transferee take responsibility for lease
obligations?
3216.13 What are my responsibilities after I transfer my interest?
3216.14 What filing fees and forms does a transfer require?
3216.15 When must I file my transfer request?
3216.16 Must I file separate transfer requests for each lease?
3216.17 Where must I file estate transfers, corporate mergers, and
name changes?
3216.18 How do I describe the lands in my lease transfer?
3216.19 May I transfer record title interest for less than 640
acres?
3216.20 When does a transfer segregate a lease?
3216.21 When is my transfer effective?
3216.22 Does BLM approve all transfer requests?
Subpart 3217--Cooperative Agreements
3217.10 What are unit agreements?
3217.11 What are communitization agreements?
3217.12 What does BLM need to approve my communitization agreement?
3217.13 When does my communitization agreement go into effect?
3217.14 When will BLM approve my drilling or development contract?
3217.15 What does BLM need to approve my drilling or development
contract?
Subpart 3250--Exploration Operations--General
3250.10 When do the exploration operations regulations apply?
3250.11 May I conduct exploration operations on my lease, someone
else's lease, or unleased land?
3250.12 What general standards apply to exploration operations?
[[Page 24402]]
3250.13 What additional BLM orders or instructions govern
exploration?
3250.14 What types of operations may I propose in my application to
conduct exploration?
Subpart 3251--Exploration Operations: Getting BLM Approval
3251.10 Do I need a permit before I start exploration operations?
3251.11 What is in a complete Notice of Intent to Conduct Geothermal
Resource Exploration Operations application?
3251.12 What action will BLM take on my Notice of Intent to Conduct
Geothermal Resource Exploration Operations?
3251.13 Once I have an approved Notice of Intent, how can I change
my exploration operations?
3251.14 Do I need a bond for conducting exploration operations?
3251.15 When will BLM release my bond?
Subpart 3252--Conducting Exploration Operations
3252.10 What operational standards apply to my exploration
operations?
3252.11 What environmental requirements must I meet when conducting
exploration operations?
3252.12 How deep may I drill a temperature gradient well?
3252.13 How long may I collect information from my temperature
gradient well?
3252.14 How must I complete a temperature gradient well?
3252.15 When must I abandon a temperature gradient well?
3252.16 How must I abandon a temperature gradient well?
Subpart 3253--Reports: Exploration Operations
3253.10 Must I share with BLM the data I collect through exploration
operations?
3253.11 Must I notify BLM when I have completed my exploration
operations?
Subpart 3254--Inspection, Enforcement, and Noncompliance for
Exploration Operations
3254.10 May BLM inspect my exploration operations?
3254.11 What will BLM do if my exploration operations are not in
compliance with my permit, other BLM approvals or orders, or the
regulations in this part?
Subpart 3255--Confidential, Proprietary Information
3255.10 Will BLM disclose information I submit under these
regulations?
3255.11 When I submit confidential, proprietary information, how can
I help ensure it is not available to the public?
3255.12 How long will information I give BLM remain confidential or
proprietary?
3255.13 How will BLM treat Indian information submitted under the
Indian Mineral Development Act?
3255.14 How will BLM administer information concerning other Indian
minerals?
3255.15 When will BLM consult with Indian mineral owners when
information concerning their minerals is the subject of a FOIA
request?
Subpart 3256--Exploration Operations Relief and Appeals
3256.10 How do I request a variance from BLM requirements that apply
to my exploration operations?
3256.11 How may I appeal a BLM decision regarding my exploration
operations?
Subpart 3260--Geothermal Drilling Operations--General
3260.10 What types of geothermal drilling operations are covered by
these regulations?
3260.11 What general standards apply to my drilling operations?
3260.12 What other orders or instructions may BLM issue?
Subpart 3261--Drilling Operations: Getting a Permit
3261.10 How do I get approval to begin well pad construction?
3261.11 How do I apply for approval for drilling operations and well
pad construction?
3261.12 What is an operations plan?
3261.13 What is a drilling program and how do I apply for drilling
program approval?
3261.14 When must I give BLM my operations plan?
3261.15 Must I give BLM my drilling permit application, drilling
program, and operations plan at the same time?
3261.16 Can my operations plan, drilling permit, and drilling
program apply to more than one well?
3261.17 How do I amend my operations plan or drilling permit?
3261.18 Do I need to file a bond before I build a well pad or drill
a well?
3261.19 When will BLM release my bond?
3261.20 How will BLM review applications submitted under this
subpart and notify me of its decision?
3261.21 How do I get approval to change an approved drilling
operation?
3261.22 How do I get approval for subsequent well operations?
Subpart 3262--Conducting Drilling Operations
3262.10 What operational requirements must I meet when drilling a
well?
3262.11 What environmental requirements must I meet when drilling a
well?
3262.12 Must I post a sign at every well?
3262.13 May BLM require me to follow a well spacing program?
3262.14 May BLM require me to take samples or perform tests and
surveys?
Subpart 3263--Well Abandonment
3263.10 May I abandon a well without BLM's approval?
3263.11 What information must I give to BLM to approve my Sundry
Notice for abandoning a well?
3263.12 How will BLM review my Sundry Notice to abandon my well and
notify me of their decision?
3263.13 What must I do to restore the site?
3263.14 May BLM require me to abandon a well?
3263.15 May I abandon a producible well?
Subpart 3264--Reports--Drilling Operations
3264.10 What must I submit to BLM after I complete a well?
3264.11 What must I submit to BLM after I finish subsequent well
operations?
3264.12 What must I submit to BLM after I abandon a well?
3264.13 What drilling and operational records must I maintain for
each well?
3264.14 How do I notify BLM of accidents occurring on my lease?
Subpart 3265--Inspection, Enforcement, and Noncompliance for Drilling
Operations
3265.10 What part of my drilling operations may BLM inspect?
3265.11 What records must I keep available for inspection?
3265.12 What will BLM do if my operations do not comply with my
permit and applicable regulations?
Subpart 3266--Confidential, Proprietary Information
3266.10 Will BLM disclose information I submit under these
regulations?
3266.11 When I submit confidential, proprietary information, how can
I help ensure it is not available to the public?
3266.12 How long will information I give BLM remain confidential or
proprietary?
Subpart 3267--Geothermal Drilling Operations Relief and Appeals
3267.10 May I request a variance from any BLM requirements that
apply to my drilling operations?
3267.11 How may I appeal a BLM decision regarding my drilling
operations?
Subpart 3270--Utilization of Geothermal Resources--General
3270.10 What types of geothermal operations are governed by these
utilization regulations?
3270.11 What general standards apply to my utilization operations?
3270.12 What other orders or instructions may BLM issue?
Subpart 3271--Utilization Operations: Getting a Permit
3271.10 What do I need to start preparing a site and building and
testing a utilization facility on Federal land leased for geothermal
resources?
3271.11 Who may apply for a permit to build a utilization facility?
3271.12 What do I need to start preliminary site investigations that
may disturb the surface?
3271.13 How do I obtain approval to build pipelines and facilities
connecting the well field to utilization facilities not located on
Federal lands leased for geothermal resources?
3271.14 What do I need to start building and testing a utilization
facility if it is not on Federal lands leased for geothermal
resources?
3271.15 How do I get a permit to begin commercial operations?
[[Page 24403]]
Subpart 3272--Utilization Plan and Facility Construction Permit
3272.10 What must I submit to BLM in my utilization plan?
3272.11 How do I describe the proposed utilization facility?
3272.12 What environmental protection measures must I include in my
utilization plan?
3272.13 How will BLM review my utilization plan and notify me of its
decision?
3272.14 How do I get a permit to build or test my facility?
Subpart 3273--How To Apply for a Site License
3273.10 When do I need a site license for a utilization facility?
3273.11 When is a site license unnecessary?
3273.12 How will BLM review my site license application?
3273.13 What lands are not available for geothermal site licenses?
3273.14 What area does a site license cover?
3273.15 What must I include in my site license application?
3273.16 What is the annual rent for a site license?
3273.17 When may BLM reassess the annual rent for my site license?
3273.18 What facility operators must pay the annual site license
rent?
3273.19 What are the bonding requirements for a site license?
3273.20 When will BLM release my bond?
3273.21 What are my obligations under the site license?
3273.22 How long will my site license remain in effect?
3273.23 May I renew my site license?
3273.24 When may BLM terminate my site license?
3273.25 When may I relinquish my site license?
3273.26 When may I assign or transfer my site license?
Subpart 3274--Applying for and Obtaining a Commercial Use Permit
3274.10 Do I need a commercial use permit to start commercial
operations?
3274.11 What must I give BLM to approve my commercial use permit
application?
3274.12 How will BLM review my commercial use permit application?
3274.13 May I get a permit even if I cannot currently demonstrate I
can operate within required standards?
Subpart 3275--Conducting Utilization Operations
3275.10 How do I change my operations if I have an approved facility
construction or commercial use permit?
3275.11 What are a facility operator's obligations?
3275.12 What environmental and safety requirements apply to facility
operations?
3275.13 How must the facility operator measure the geothermal
resources?
3275.14 What aspects of my geothermal operations must I measure?
3275.15 How accurately must I measure my production and utilization?
3275.16 What standards apply to installing and maintaining meters?
3275.17 What must I do if I find an error in a meter?
3275.18 May BLM require me to test for byproducts associated with
geothermal resource production?
3275.19 How do I apply to commingle production?
3275.20 What will BLM do if I waste geothermal resources?
3275.21 May BLM order me to drill and produce wells on my lease?
Subpart 3276--Reports: Utilization Operations
3276.10 What are the reporting requirements for facility and lease
operations involving Federal geothermal resources?
3276.11 What information must I include for each well in the monthly
report of well operations?
3276.12 What information must I give BLM in the monthly report for
facility operations?
3276.13 What additional information must I give BLM in the monthly
report for flash and dry steam facilities?
3276.14 What information must I give BLM in the monthly report for
direct use facilities?
3276.15 How must I notify BLM of accidents occurring at my
utilization facility?
Subpart 3277--Inspections, Enforcement, and Noncompliance
3277.10 When will BLM inspect my operations?
3277.11 What records must I keep available for inspection?
3277.12 What will BLM do if I do not comply with all BLM
requirements pertaining to utilization operations?
Subpart 3278--Confidential, Proprietary Information
3278.10 When will BLM disclose information I submit under these
regulations?
3278.11 When I submit confidential, proprietary information, how can
I help ensure it is not available to the public?
3278.12 How long will information I give BLM remain confidential or
proprietary?
Subpart 3279--Utilization Relief and Appeals
3279.10 When may I request a variance from BLM requirements
pertaining to utilization operations?
3279.11 How may I appeal a BLM decision regarding my utilization
operations?
Authority: 30 U.S.C. 1001-1028; 43 U.S.C. 1701 et seq.; and Pub.
L. 109-58.
Subpart 3200--Geothermal Resource Leasing
Sec. 3200.1 Definitions.
For purposes of this part and part 3280:
Acquired lands means lands or mineral estates that the United
States obtained by deed through purchase, gift, condemnation or other
legal process.
Act means the Geothermal Steam Act of 1970, as amended (30 U.S.C.
1001 et seq.).
Additional extension means the period of years added to the primary
term of a lease beyond the first 10 years and subsequent 5-year initial
extension of a geothermal lease. The additional extension may not
exceed 5 years.
Byproducts are minerals (exclusive of oil, hydrocarbon gas, and
helium), found in solution or in association with geothermal steam,
that no person would extract and produce by themselves because they are
worth less than 75 percent of the value of the geothermal steam or
because extraction and production would be too difficult.
Casual use means activities that ordinarily lead to no significant
disturbance of Federal lands, resources, or improvements.
Commercial operation means delivering Federal geothermal resources,
or electricity or other benefits derived from those resources, for
sale. This term also includes delivering resources to the utilization
point, if you are utilizing Federal geothermal resources for your own
benefit and not selling energy to another entity.
Commercial production means production of geothermal resources when
the economic benefits from the production are greater than the cost of
production.
Commercial production or generation of electricity means generation
of electricity that is sold or is subject to sale, including the
electricity or energy that is reasonably required to produce the
resource used in production of electricity for sale or to convert the
resource into electrical energy for sale.
Commercial quantities means either:
(1) For production from a lease, a sufficient volume (in terms of
flow and temperature) of the resource to provide a reasonable return
after you meet all costs of production; or
(2) For production from a unit, a sufficient volume (in terms of
flow and temperature) of the resource to provide a reasonable return
after you meet all costs of drilling and production.
Commercial use permit means BLM authorization for commercially
operating a utilization facility and/or utilizing Federal geothermal
resources.
Development or drilling contract means a BLM-approved agreement
between one or more lessees and one or more entities that makes
resource exploration more efficient and protects the public interest.
Direct use means utilization of geothermal resources for
commercial,
[[Page 24404]]
residential, agricultural, public facilities, or other energy needs
other than the commercial production or generation of electricity.
Direct use may occur under either a regular geothermal lease or a
direct use lease.
Direct use lease means a lease issued noncompetitively in an area
BLM designates as available exclusively for:
(1) Direct use of geothermal resources, without sale; and
(2) Purposes other than commercial generation of electricity.
Exploration operations means any activity relating to the search
for evidence of geothermal resources, where you are physically present
on the land and your activities may cause damage to those lands.
Exploration operations include, but are not limited to, geophysical
operations, drilling temperature gradient wells, drilling holes used
for explosive charges for seismic exploration, core drilling or any
other drilling method, provided the well is not used for geothermal
resource production. It also includes related construction of roads and
trails, and cross-country transit by vehicles over public land.
Exploration operations do not include the direct testing of geothermal
resources or the production or utilization of geothermal resources.
Facility construction permit means BLM permission to build and test
a utilization facility.
Facility operator means the person receiving BLM authorization to
site, construct, test, and/or operate a utilization facility. A
facility operator may be a lessee, a unit operator, or a third party.
Geothermal drilling permit means BLM written permission to drill
for and test Federal geothermal resources.
Geothermal exploration permit means BLM written permission to
conduct only geothermal exploration operations and associated surface
disturbance activities under an approved Notice of Intent to Conduct
Geothermal Resource Exploration Operations, and includes any necessary
conditions BLM imposes.
Geothermal resources operational order means a formal, numbered
order, issued by BLM, that implements or enforces the regulations in
this part.
Geothermal steam and associated geothermal resources means:
(1) All products of geothermal processes, including indigenous
steam, hot water, and hot brines;
(2) Steam and other gases, hot water, and hot brines resulting from
water, gas, or other fluids artificially introduced into geothermal
formations;
(3) Heat or other associated energy found in geothermal formations;
and
(4) Any byproducts.
Gross proceeds means gross proceeds as defined by the Minerals
Management Service at 30 CFR 206.351.
Initial extension means a period of years, no longer than 5 years,
added to the primary term of a geothermal lease beyond the first 10
years of the lease, provided certain lease obligations are met.
Interest means ownership in a lease of all or a portion of the
record title or operating rights.
Known geothermal resource area (KGRA) means an area where BLM
determines that persons knowledgeable in geothermal development would
spend money to develop geothermal resources.
Lessee means a person holding record title interest in a geothermal
lease issued by BLM.
MMS means the Minerals Management Service of the Department of the
Interior.
Notice to Lessees (NTL) means a written notice issued by BLM that
implements the regulations in this part, part 3280, or geothermal
resource operational orders, and provides more specific instructions on
geothermal issues within a state, district, or field office. Notices to
Lessees may be obtained by contacting the BLM State Office that issued
the NTL.
Operating rights (working interest) means any interest held in a
lease with the right to explore for, develop, and produce leased
substances.
Operating rights owner means a person who holds operating rights in
a lease. A lessee is an operating rights owner if the lessee did not
transfer all of its operating rights. An operator may or may not own
operating rights.
Operations plan, or plan of operations means a plan which fully
describes the location of proposed drill pad, access roads and other
facilities related to the drilling and testing of Federal geothermal
resources, and includes measures for environmental and other resources
protection and mitigation.
Operator means any person who has taken responsibility in writing
for the operations conducted on leased lands.
Person means an individual, firm, corporation, association,
partnership, trust, municipality, consortium, or joint venture.
Primary term means the first 10 years of a lease, not including any
periods of suspension.
Produced or utilized in commercial quantities means the completion
of a well that:
(1) Produces geothermal resources in commercial quantities; or
(2) Is capable of producing geothermal resources in commercial
quantities so long as BLM determines that diligent efforts are being
made toward the utilization of the geothermal resource.
Public lands means the same as defined in 43 U.S.C. 1702(e).
Record title means legal ownership of a geothermal lease
established in BLM's records.
Relinquishment means the lessee's voluntary action to end the lease
in whole or in part.
Secretary means the Secretary of the Interior or the Secretary's
delegate.
Site license means BLM's written authorization to site a
utilization facility on leased Federal lands.
Stipulation means additional conditions BLM attaches to a lease or
permit.
Sublease means the lessee's conveyance of its interests in a lease
to an operating rights owner. A sublessee is responsible for complying
with all terms, conditions, and stipulations of the lease.
Subsequent well operations are those operations done to a well
after it has been drilled. Examples of subsequent well operations
include: cleaning the well out, surveying it, performing well tests,
chemical stimulation, running a liner or another casing string,
repairing existing casing, or converting the well from a producer to an
injector or vice versa.
Sundry notice is your written request to perform work not covered
by another type of permit, or to change operations in your previously
approved permit.
Surface management agency means any Federal agency, other than BLM,
that is responsible for managing the surface overlying Federally-owned
minerals.
Temperature gradient well means a well authorized under a
geothermal exploration permit drilled in order to obtain information on
the change in temperature over the depth of the well.
Transfer means any conveyance of an interest in a lease by
assignment, sublease, or otherwise.
Unit agreement means an agreement to explore for, produce and
utilize separately-owned interests in geothermal resources as a single
consolidated unit. A unit agreement defines how costs and benefits will
be allocated among the holders of interest in the unit area.
Unit area means all tracts committed to an approved unit agreement.
Unit operator means the person who has stated in writing to BLM
that the interest owners of the committed leases have designated it as
operator of the unit area.
Unitized substances means geothermal resources recovered from lands
committed to a unit agreement.
[[Page 24405]]
Utilization Plan or plan of utilization means a plan which fully
describes the utilization facility, including measures for
environmental protection and mitigation.
Waste means:
(1) Physical waste, including refuse; or
(2) Improper use or unnecessary dissipation of geothermal resources
through inefficient drilling, production, transmission, or utilization.
Sec. 3200.3 Changes in agency duties.
There are many leases and agreements currently in effect, and that
will remain in effect, involving Federal geothermal resources leases
that specifically refer to the United States Geological Survey, USGS,
Minerals Management Service, MMS, or Conservation Division. These
leases and agreements may also specifically refer to various officers
such as Supervisor, Conservation Manager, Deputy Conservation Manager,
Minerals Manager, and Deputy Minerals Manager. Those references must
now be read to mean either the Bureau of Land Management or the
Minerals Management Service, as appropriate. In addition, many leases
and agreements specifically refer to 30 CFR part 270 or a specific
section of that part. Effective December 3, 1982, references in such
leases and agreements to 30 CFR part 270 should be read as references
to this part 3200, which is the successor regulation to 30 CFR part
270.
Sec. 3200.4 What requirements must I comply with when taking any
actions or conducting any operations under this part?
When you are taking any actions or conducting any operations under
this part, you must comply with:
(a) The Act and the regulations of this part;
(b) Geothermal resource operational orders;
(c) Notices to lessees;
(d) Lease terms and stipulations;
(e) Approved plans and permits;
(f) Conditions of approval;
(g) Verbal orders from BLM that will be confirmed in writing;
(h) Other instructions from BLM; and
(i) Any other applicable laws and regulations.
Sec. 3200.5 What are my rights of appeal?
(a) If you are adversely affected by a BLM decision under this
part, you may appeal that decision under parts 4 and 1840 of this
title.
(b) All BLM decisions or approvals under this part are immediately
effective and remain in effect while appeals are pending unless a stay
is granted in accordance with Sec. 4.21(b) of this title.
Sec. 3200.6 What types of geothermal leases will BLM issue?
BLM will issue two types of geothermal leases:
(a) Geothermal leases (competitively issued under subpart 3203 or
noncompetitively issued under subpart 3204) which may be used for any
type of geothermal use, such as commercial generation of electricity or
direct use of the resource.
(b) Direct use leases (issued under subpart 3205).
Sec. 3200.7 What regulations apply to geothermal leases issued before
August 8, 2005?
(a) General applicability. (1) Leases issued before August 8, 2005,
are subject to this part and part 3280, except that such leases are
subject to the BLM regulations in effect on August 8, 2005 (43 CFR
parts 3200 and 3280 (2004)), with regard to regulatory provisions
relating to royalties, minimum royalties, rentals, primary term and
lease extensions, diligence and annual work requirements, and renewals.
(2) The lessee of a lease issued before August 8, 2005, may elect
to be subject to all of the regulations in this part and part 3280,
without regard to the exceptions in paragraph (a)(1) of this section.
Such an election must occur no later than December 1, 2008. Any such
election as it pertains to lease terms relating to royalty rates must
be made under the royalty rate conversion provisions of subpart 3212. A
lessee must obtain a royalty conversion under subpart 3212 to make an
election under this paragraph effective.
(b) Royalty rate conversion and production incentives. The lessee
of a lease issued before August 8, 2005, may:
(1) Choose to convert lease terms relating to royalty rates under
subpart 3212; or
(2) If it does not convert lease terms relating to royalty rates,
apply for a production incentive under subpart 3212 (if eligible under
that subpart).
(c) Two year extension. The lessee of a lease issued before August
8, 2005, may apply to extend a lease that was within 2 years of the end
of its term on August 8, 2005, for up to 2 years to allow achievement
of production under the lease or to allow the lease to be included in a
producing unit.
Sec. 3200.8 What regulations apply to leases issued in response to
applications pending on August 8, 2005?
(a) Any leases issued in response to applications that were pending
on August 8, 2005, are subject to this part and part 3280, except that
such leases are subject to the BLM regulations in effect on August 8,
2005 (43 CFR parts 3200 and 3280 (2004)), with regard to regulatory
provisions relating to royalties, minimum royalties, rentals, primary
term and lease extensions, diligence and annual work requirements, and
renewals.
(b)(1) The lessee of a lease issued pursuant to an application that
was pending on August 8, 2005, may elect to be subject to all of the
regulations in this part and part 3280, without regard to the
exceptions in paragraph (a) of this section.
(2) For leases issued on or after August 8, 2005, and before June
1, 2007, an election under paragraph (b)(1) of this section must occur
no later than December 1, 2008.
(3) For leases issued on or after June 1, 2007, the lease applicant
must make its election under paragraph (b)(1) of this section and
notify BLM before the lease is issued.
Subpart 3201--Available Lands
Sec. 3201.10 What lands are available for geothermal leasing?
(a) BLM may issue leases on:
(1) Lands administered by the Department of the Interior, including
public and acquired lands not withdrawn from such use;
(2) Lands administered by the Department of Agriculture with its
concurrence;
(3) Lands conveyed by the United States where the geothermal
resources were reserved to the United States; and
(4) Lands subject to Section 24 of the Federal Power Act, as
amended (16 U.S.C. 818), with the concurrence of the Secretary of
Energy.
(b) If your activities under your lease or permit might adversely
affect a significant thermal feature of a National Park System unit,
BLM will include stipulations to protect this thermal feature in your
lease or permit. These stipulations will be added, if necessary, when
your lease or permit is issued, extended, renewed or modified.
Sec. 3201.11 What lands are not available for geothermal leasing?
BLM will not issue leases for:
(a) Lands where the Secretary has determined that issuing the lease
would cause unnecessary or undue degradation of public lands and
resources;
(b) Lands contained within a unit of the National Park System, or
otherwise administered by the National Park Service;
(c) Lands within a National Recreation Area;
(d) Lands where the Secretary determines after notice and comment
[[Page 24406]]
that geothermal operations, including exploration, development or
utilization of lands, are reasonably likely to result in a significant
adverse effect on a significant thermal feature within a unit of the
National Park System;
(e) Fish hatcheries or wildlife management areas administered by
the Secretary;
(f) Indian trust or restricted lands within or outside the
boundaries of Indian reservations;
(g) The Island Park Geothermal Area; and
(h) Lands where Section 43 of the Mineral Leasing Act (30 U.S.C.
226-3) prohibits geothermal leasing, including:
(1) Wilderness areas or wilderness study areas administered by BLM
or other surface management agencies;
(2) Lands designated by Congress as wilderness study areas, except
where the statute designating the study area specifically allows
leasing to continue; and
(3) Lands within areas allocated for wilderness or further planning
in Executive Communication 1504, Ninety-Sixth Congress (House Document
96-119), unless such lands are allocated to uses other than wilderness
by a land and resource management plan or are released to uses other
than wilderness by an Act of Congress.
Subpart 3202--Lessee Qualifications
Sec. 3202.10 Who may hold a geothermal lease?
You may hold a geothermal lease if you are:
(a) A United States citizen who is at least 18 years old;
(b) An association of United States citizens, including a
partnership;
(c) A corporation organized under the laws of the United States,
any state or the District of Columbia; or
(d) A domestic governmental unit.
Sec. 3202.11 Must I prove I am qualified to hold a lease when filing
an application to lease?
You do not need to submit proof that you are qualified to hold a
lease under Sec. 3202.10 at the time you submit an application to
lease, but BLM may ask you in writing for information about your
qualifications at any time. You must submit the additional information
to BLM within 30 days after you receive the request.
Sec. 3202.12 Are other persons allowed to act on my behalf to file an
application to lease?
Another person may act on your behalf to file an application to
lease. The person acting for you must be qualified to hold a lease
under Sec. 3202.10, and must do the following:
(a) Sign the application;
(b) State his or her title;
(c) Identify you as the person he or she is acting for; and
(d) Provide written proof of his or her qualifications and
authority to take such action, if BLM requests it.
Sec. 3202.13 What happens if the applicant dies before the lease is
issued?
If the applicant dies before the lease is issued, BLM will issue
the lease to either the administrator or executor of the estate or the
heirs. If the heirs are minors, BLM will issue the lease to either a
legal guardian or trustee, provided that the legal guardian or trustee
is qualified to hold a lease under Sec. 3202.10.
Subpart 3203--Competitive Leasing
Sec. 3203.5 What is the general process for obtaining a geothermal
lease?
(a) The competitive geothermal leasing process consists of the
following steps:
(1)(i) Entities interested in geothermal development nominate lands
by submitting to BLM descriptions of lands they seek to be included in
a lease sale; or
(ii) BLM may include land in a competitive lease sale on its own
initiative.
(2) BLM provides notice of the parcels to be offered, and the time,
location, and process for participating in the lease sale.
(3) BLM holds the lease sale and offers leases to the successful
bidder.
(b) BLM will issue geothermal leases to the highest responsible
qualified bidder after a competitive leasing process, except for
situations where noncompetitive leasing is allowed under subparts 3204
and 3205, which include:
(1) Lease applications pending on August 8, 2005;
(2) Lands for which no bid was received in a competitive lease
sale;
(3) Direct use lease applications for which no competitive interest
exists; and
(4) Lands subject to mining claims.
Sec. 3203.10 How are lands included in a competitive sale?
(a) A qualified company or individual may nominate lands for
competitive sale by submitting an applicable BLM nomination form.
(b) A nomination is a description of lands that you seek to be
included in one lease. Each nomination may not exceed 5,120 acres,
unless the area to be leased includes an irregular subdivision. Your
nomination must provide a description of the lands nominated by legal
land description.
(1) For lands surveyed under the public land rectangular survey
system, describe the lands to the nearest aliquot part within the legal
subdivision, section, township, and range;
(2) For unsurveyed lands, describe the lands by metes and bounds,
giving courses and distances, and tie this information to an official
corner of the public land surveys, or to a prominent topographic
feature;
(3) For approved protracted surveys, include an entire section,
township, and range. Do not divide protracted sections into aliquot
parts;
(4) For unsurveyed lands in Louisiana and Alaska that have water
boundaries, discuss the description with BLM before submission; and
(5) For fractional interest lands, identify the United States
mineral ownership by percentage.
(c) You may submit more than one nomination, as long as each
nomination separately satisfies the requirements of paragraph (b) of
this section and includes the filing fee specified in Sec. 3203.12.
(d) BLM may reconfigure lands to be included in each parcel offered
for sale.
(e) BLM may include land in a lease sale on its own initiative.
Sec. 3203.11 Under what circumstances may parcels be offered as a
block for competitive sale?
(a) As part of your nomination, you may request that lands be
offered as a block at competitive sale by:
(1) Specifying that the lands requested will be associated with a
project or unit: and
(2) Including information to support your request. BLM may require
that you provide additional information.
(b) BLM may offer parcels as a block in response to a request under
paragraph (a) of this section or on its own initiative. BLM will offer
parcels as a block only if information is available to BLM indicating
that a geothermal resource that could be produced as one unit can
reasonably be expected to underlie such parcels.
Sec. 3203.12 What fees must I pay to nominate lands?
Submit with your nomination a filing fee for nominations of lands
as found in the fee schedule in Sec. 3000.12 of this chapter.
Sec. 3203.13 How often will BLM hold a competitive lease sale?
BLM will hold a competitive lease sale at least once every 2 years
for lands available for leasing in a state that has nominations
pending. A sale may include lands in more than one state. BLM may hold
a competitive lease sale
[[Page 24407]]
in a state that has no nominations pending.
Sec. 3203.14 How will BLM provide notice of a competitive lease sale?
(a) The lands available for competitive lease sale under this
subpart will be described in a Notice of Competitive Geothermal Lease
Sale, which will include:
(1) The lease sale format and procedures;
(2) The time, date, and place of the lease sale; and
(3) Stipulations applicable to each parcel.
(b) At least 45 days before conducting a competitive lease sale,
BLM will post the Notice in the BLM office having jurisdiction over the
lands to be offered, and make it available for posting to surface
managing agencies having jurisdiction over any of the included lands.
(c) BLM may take other measures of notification for the competitive
sale such as:
(1) Issuing news releases;
(2) Notifying interested parties of the lease sale;
(3) Publishing notice in the newspaper; or
(4) Posting the list of parcels on the Internet.
Sec. 3203.15 How does BLM conduct a competitive lease sale?
(a) BLM will offer parcels for competitive bidding as specified in
the sale notice.
(b) The winning bid will be the highest bid by a qualified bidder.
(c) You may not withdraw a bid. Your bid constitutes a legally
binding commitment by you.
(d) BLM will reject all bids and re-offer a parcel if:
(1) BLM determines that the high bidder is not qualified; or
(2) The high bidder fails to make all payments required under Sec.
3203.17.
Sec. 3203.17 How must I make payments if I am the successful bidder?
(a) You must make payments by personal check, cashier's check,
certified check, bank draft, or money order payable to the ``Department
of the Interior--Bureau of Land Management'' or by other means deemed
acceptable by BLM.
(b) By the close of official business hours on the day of the sale
or such other time as BLM may specify, you must submit for each parcel:
(1) Twenty percent of the bid;
(2) The total amount of the first year's rental; and
(3) The processing fee for competitive lease applications found in
the fee schedule in Sec. 3000.12 of this chapter.
(c) Within 15 calendar days after the last day of the sale, you
must submit the balance of the bid to the BLM office conducting the
sale.
(d) If you fail to make all payments required under this section,
or fail to meet the qualifications in Sec. 3202.10, BLM will revoke
acceptance of your bid and keep all money that has been submitted.
Sec. 3203.18 What happens to parcels that receive no bids at a
competitive lease sale?
Lands offered at a competitive lease sale that receive no bids will
be available for leasing in accordance with subpart 3204.
Subpart 3204--Noncompetitive Leasing Other Than Direct Use Leases
Sec. 3204.5 How can I obtain a noncompetitive lease?
(a) Lands offered at a competitive lease sale that receive no bids
will be available for noncompetitive leasing for a 2-year period
beginning the first business day following the sale.
(b) You may obtain a noncompetitive lease for lands available
exclusively for direct use of geothermal resources, under subpart 3205.
(c) The holder of a mining claim may obtain a noncompetitive lease
for lands subject to the mining claim under Sec. 3204.12.
(d) If your lease application was pending on August 8, 2005, you
may obtain a noncompetitive lease under the leasing process in effect
on that date, unless you notify BLM in writing that you elect for the
lease application to be subject to the competitive leasing process
specified in this subpart. If you elect for your lease application to
be subject to the competitive leasing process in this subpart, your
application will be considered a nomination for future competitive
lease offerings for the lands in your application. An election made
under this paragraph is not the same as an election made under Sec.
3200.8.
Sec. 3204.10 What payment must I submit with my noncompetitive lease
application?
Submit the processing fee for noncompetitive lease applications
found in the fee schedule in Sec. 3000.12 of this chapter for each
lease application, and an advance rent in the amount of $1 per acre (or
fraction of an acre). BLM will refund the advance rent if we reject the
lease application or if you withdraw the lease application before BLM
accepts it. If the advance rental payment you send is less than 90
percent of the correct amount, BLM will reject the lease application.
Sec. 3204.11 How may I acquire a noncompetitive lease for lands that
were not sold at a competitive lease sale?
(a) For a 2-year period following a competitive lease sale, you may
file a noncompetitive lease application for lands on which no bids were
received, on a form available from BLM. Submit 2 executed copies of the
applicable form to BLM. At least one form must have an original
signature. We will accept only exact copies of the form on one 2-sided
page.
(1) For 30 days after the competitive geothermal lease sale,
noncompetitive applications will be accepted only for parcels as
configured in the Notice of Competitive Geothermal Lease Sale.
(2) Subsequent to the 30-day period specified in paragraph (a)(1)
of this section, you may file a noncompetitive application for any
available lands covered by the competitive lease sale.
(b)(1) All applications for a particular parcel under this section
will be considered simultaneously filed if received in the proper BLM
office any time during the first business day following the competitive
lease sale. You may submit only one application per parcel. An
application will not be available for public inspection the day it is
filed. BLM will randomly select an application among those accepted on
the first business day to receive a lease offer.
(2) Subsequent to the first business day following the competitive
lease sale, the first qualified applicant to submit an application will
be offered the lease. If BLM receives simultaneous applications as to
date and time for overlapping lands, BLM will randomly select one to
receive a lease offer.
Sec. 3204.12 How may I acquire a noncompetitive lease for lands
subject to a mining claim?
If you hold a mining claim for which you have a current approved
plan of operations, you may file a noncompetitive lease application for
lands within the mining claim, on a form available from BLM. Submit two
(2) executed copies of the applicable form to BLM, together with
documentation of mining claim ownership and the current approved plan
of operations for the mine. At least one form must have an original
signature. We will accept only exact copies of the form on one 2-sided
page.
Sec. 3204.13 How will BLM process noncompetitive lease applications
pending on August 8, 2005?
Noncompetitive lease applications pending on August 8, 2005, will
be processed under policies and procedures existing on that date unless
[[Page 24408]]
the applicant notifies BLM in writing that it elects for the lease
application to be subject to the competitive leasing process specified
in this subpart, in which case the application will be considered a
nomination for future competitive lease offerings for the lands in the
application.
Sec. 3204.14 May I amend my application for a noncompetitive lease?
You may amend your application for a noncompetitive lease at any
time before we issue the lease, provided your amended application meets
the requirements in this subpart and does not add lands not included in
the original application. To add lands, you must file a new
application.
Sec. 3204.15 May I withdraw my application for a noncompetitive
lease?
During the 30-day period after the competitive lease sale, BLM will
only accept a withdrawal of the entire application. Following that 30-
day period, you may withdraw your noncompetitive lease application in
whole or in part at any time before BLM issues the lease. If a partial
withdrawal causes your lease application to contain less than the
minimum acreage required under Sec. 3206.12, BLM will reject the
application.
Subpart 3205--Direct Use Leasing
Sec. 3205.6 When may BLM issue a direct use lease to an applicant?
(a) BLM may issue a direct use lease to an applicant if the
following conditions are satisfied:
(1) The lands included in the lease application are open for
geothermal leasing;
(2) BLM determines that the lands are appropriate for exclusive
direct use operations, without sale, for purposes other than commercial
generation of electricity;
(3) The acreage covered by the lease application is not greater
than the quantity of acreage that is reasonably necessary for the
proposed use;
(4) BLM has published a notice of the land proposed for a direct
use lease for 90 days before issuing the lease;
(5) During the 90-day period beginning on the date of publication,
BLM did not receive any nomination to include the lands in the next
competitive lease sale following that period for which the lands would
be eligible;
(6) BLM determines there is no competitive interest in the
resource; and
(7) The applicant is the first qualified applicant.
(b) If BLM determines that the land for which an applicant has
applied under this subpart is open for geothermal leasing and is
appropriate only for exclusive direct use operations, but determines
that there is competitive interest in the resource, it will include the
land in a competitive lease sale with lease stipulations limiting
operations to exclusive direct use.
Sec. 3205.7 How much acreage should I apply for in a direct use
lease?
You should apply for only the amount of acreage that is necessary
for your intended operation. A direct use lease may not cover more than
the quantity of acreage that BLM determines is reasonably necessary for
the proposed use. In no case may a direct use lease exceed 5,120 acres,
unless the area to be leased includes an irregular subdivision.
Sec. 3205.10 How do I obtain a direct use lease?
(a) You may file an application for a direct use lease for any
lands on which BLM manages the geothermal resources, on a form
available from BLM. You may not sell the geothermal resource and you
may not use it for the commercial generation of electricity.
(b) In your application, you must also provide information that
will allow BLM to determine how much acreage is reasonably necessary
for your proposed use, including:
(1) A description of all anticipated structures, facilities, wells,
and pipelines including their size, location, function, and associated
surface disturbance;
(2) A description of the utilization process;
(3) A description and analysis of anticipated reservoir production,
injection, and characteristics to the extent required by BLM; and
(4) Any additional information or data that we may require.
(c) Submit with your application the nonrefundable processing fee
for noncompetitive lease applications found in the fee schedule in
Sec. 3000.12 of this chapter for each direct use lease application.
Sec. 3205.12 How will BLM respond to direct use lease applications on
lands managed by another agency?
BLM will respond to a direct use lease application on lands managed
by another surface management agency by forwarding the application to
that agency for its review. If that agency consents to lease issuance
and recommends that the lands are appropriate for direct use
operations, without sale, for purposes other than commercial generation
of electricity, BLM will consider that consent and recommendation in
determining whether to issue the lease. BLM may not issue a lease
without the consent of the surface management agency.
Sec. 3205.13 May I withdraw my application for a direct use lease?
You may withdraw your application for a direct use lease any time
before issuance of a lease.
Sec. 3205.14 May I amend my application for a direct use lease?
You may amend your application for a direct use lease at any time
before we issue the lease, provided your amended application meets the
requirements in this subpart and does not add lands. To add lands, you
must file a new application.
Sec. 3205.15 How will I know whether my direct use lease will be
issued?
(a) If BLM decides to issue you a direct use lease, it will do so
in accordance with this subpart and subpart 3206.
(b) If BLM decides to deny your application for a direct use lease,
it will advise you of its decision in writing.
Subpart 3206--Lease Issuance
Sec. 3206.10 What must I do for BLM to issue a lease?
Before BLM issues any lease, you must:
(a) Accept all lease stipulations;
(b) Make all required payments to BLM;
(c) Sign a unit joinder or waiver, if applicable; and
(d) Comply with the maximum limit on acreage holdings (see
Sec. Sec. 3206.12 and 3206.16).
Sec. 3206.11 What must BLM do before issuing a lease?
For all leases, BLM must:
(a) Determine that the land is available; and
(b) Determine that your lease development will not have a
significant adverse impact on any significant thermal feature within
any of the following units of the National Park System:
(1) Mount Rainier National Park;
(2) Crater Lake National Park;
(3) Yellowstone National Park;
(4) John D. Rockefeller, Jr. Memorial Parkway;
(5) Bering Land Bridge National Preserve;
(6) Gates of the Arctic National Park and Preserve;
(7) Katmai National Park;
(8) Aniakchak National Monument and Preserve;
(9) Wrangell-St. Elias National Park and Preserve;
[[Page 24409]]
(10) Lake Clark National Park and Preserve;
(11) Hot Springs National Park;
(12) Big Bend National Park (including that portion of the Rio
Grande National Wild Scenic River within the boundaries of Big Bend
National Park);
(13) Lassen Volcanic National Park;
(14) Hawaii Volcanoes National Park;
(15) Haleakala National Park;
(16) Lake Mead National Recreation Area; and
(17) Any other significant thermal features within National Park
System units that the Secretary may add to the list of these features,
in accordance with 30 U.S.C. 1026(a)(3).
Sec. 3206.12 What are the minimum and maximum lease sizes?
Other than for direct use leases (the size for which is addressed
in Sec. 3205.7), the smallest lease we will issue is 640 acres, or all
lands available for leasing in the section, whichever is less. The
largest lease we will issue is 5,120 acres, unless the area to be
leased includes an irregular subdivision. A lease must embrace a
reasonably compact area.
Sec. 3206.13 What is the maximum acreage I may hold?
You may not directly or indirectly hold more than 51,200 acres in
any one state.
Sec. 3206.14 How does BLM compute acreage holdings?
BLM computes acreage holdings as follows:
(a) If you own an undivided lease interest, your acreage holdings
include the total lease acreage:
(b) If you own stock in a corporation or a beneficial interest in
an association which holds a geothermal lease, your acreage holdings
will include your proportionate part of the corporation's or
association's share of the total lease acreage. This paragraph applies
only if you own more than 10 percent of the corporate stock or a
beneficial interest in the association; and
(c) If you own a lease interest, you will be charged with the
proportionate share of the total lease acreage based on your share of
the lease ownership. You will not be charged twice for the same acreage
where you own both record title and operating rights for the lease. For
example, if you own 50 percent record title interest in a 640 acre
lease and 25 percent operating rights, you are charged with 320 acres.
Sec. 3206.15 How will BLM charge acreage holdings if the United
States owns only a fractional interest in the geothermal resources in a
lease?
Where the United States owns only a fractional interest in the
geothermal resources of the lands in a lease, BLM will only charge you
with the part owned by the United States as acreage holdings. For
example, if you own 100 percent of record title in a 100 acre lease,
and the United States owns 50 percent of the mineral estate, you are
charged with 50 acres.
Sec. 3206.16 Is there any acreage which is not chargeable?
BLM does not count leased acreage included in any approved unit
agreement, drilling contract, or development contract as part of your
total state acreage holdings.
Sec. 3206.17 What will BLM do if my holdings exceed the maximum
acreage limits?
BLM will notify you in writing if your acreage holdings exceed the
limit in Sec. 3206.13. You have 90 days from the date you receive the
notice to reduce your holdings to within the limit. If you do not
comply, BLM will cancel your leases, beginning with the lease most
recently issued, until your holdings are within the limit.
Sec. 3206.18 When will BLM issue my lease?
BLM issues your lease the day we sign it. Your lease goes into
effect the first day of the next month after the issuance date.
Subpart 3207--Lease Terms and Extensions
Sec. 3207.5 What terms (time periods) apply to my lease?
Your lease may include a number of different time periods. Not
every time period applies to every lease. These periods include:
(a) A primary term consisting of:
(1) Ten years;
(2) An initial extension of the primary term for up to 5 years;
(3) An additional extension of the primary term for up to 5 years;
(b) A drilling extension of 5 years under Sec. 3207.14;
(c) A production extension of up to 35 years; and
(d) A renewal period of up to 55 years.
Sec. 3207.10 What is the primary term of my lease?
(a) Leases have a primary term of 10 years.
(b) BLM will extend the primary term for 5 years if:
(1) By the end of the 10th year of the primary term in paragraph
(a), you have satisfied the requirements in Sec. 3207.11; and
(2) At the end of each year after the 10th year of the lease, you
have satisfied the requirements in Sec. 3207.12(a) or (d) for that
year.
(c) BLM will extend the primary term for 5 additional years if:
(1) You satisfied the requirements of Sec. 3207.12(b) or (d); and
(2) At the end of each year of the second 5-year extension you
satisfy the requirements in Sec. 3207.12(c) or (d) for that year.
(d) If you do not satisfy the annual requirements during the
initial or additional extension of your primary term, your lease
terminates or expires.
Sec. 3207.11 What work am I required to perform during the first 10
years of my lease for BLM to grant the initial extension of the primary
term of my lease?
(a) By the end of the 10th year, you must expend a minimum of $40
per acre in development activities that provide additional geologic or
reservoir information, such as:
(1) Geologic investigation and analysis;
(2) Drilling temperature gradient wells;
(3) Core drilling;
(4) Geochemical or geophysical surveys;
(5) Drilling production or injection wells;
(6) Reservoir testing; or
(7) Other activities approved by BLM.
(b) In lieu of the work requirement in paragraph (a) of this
section, you may:
(1) Make a payment to BLM equivalent to the required work
expenditure such that the total of the payment and the value of the
work you perform equals $40 per acre (or fraction thereof) of land
included in your lease; or
(2) Submit documentation to BLM that you have produced or utilized
geothermal resources in commercial quantities.
(c) Prior to the end of the 10th year of the primary term, you must
submit detailed information to BLM demonstrating that you have complied
with paragraph (a) or (b) of this section. Describe the activities by
type, location, date(s) conducted, and the dollar amount spent on those
operations. Include all geologic information obtained from your
activities in your report. Submit additional information that BLM
requires to determine compliance within the timeframe that we specify.
We must approve the type of work done and the expenditures claimed in
your report before we can credit them toward your requirements.
[[Page 24410]]
(d) If you do not perform development activities, make payments, or
document production or utilization as required by this section, your
lease will expire at the end of the 10-year primary term.
(e) If you complied with paragraph (c) of this section, but BLM has
not determined by the end of the 10th year whether you have complied
with the requirements of paragraph (a) or (b) of this section, upon
request we will suspend your lease effective immediately before its
expiration in order to determine your compliance. If we determine that
you have complied, we will lift the suspension and grant the first 5-
year extension of the primary term effective on the first day of the
month following our determination of compliance. If we determine that
you have not complied, we will terminate the suspension and your lease
will expire upon the date of the termination of the suspension.
(f) Every 3 calendar years the dollar amount of the work
requirements and the amount to be paid in lieu of such work required by
this section will automatically be updated. The update will be based on
the change in the Implicit Price Deflator-Gross Domestic Product for
those 3 years.
Sec. 3207.12 What work am I required to perform each year for BLM to
continue the initial and additional extensions of the primary term of
my lease?
(a) To continue the initial extension of the primary term of your
lease, in each of lease years 11, 12, 13, and 14, you must expend a
minimum of $15 per acre (or fraction thereof) per year in development
activities that establish a geothermal potential or confirm the
existence of producible geothermal resources. Such activities include,
but are not limited to:
(1) Geologic investigation and analysis;
(2) Drilling temperature gradient wells;
(3) Core drilling;
(4) Geochemical or geophysical surveys;
(5) Drilling production or injection wells;
(6) Reservoir testing; or
(7) Other activities approved by BLM.
(b) For BLM to grant the additional extension of the primary term
of your lease, in year 15 you must expend a minimum of $15 per acre (or
fraction thereof) in development activities that provide additional
geologic or reservoir information, such as those described in paragraph
(a) of this section.
(c) To continue the additional extension of the primary term of
your lease, in each of lease years 16, 17, 18, and 19, you must expend
a minimum of $25 per acre (or fraction thereof) per year in development
activities that provide additional geologic or reservoir information,
such as those described in paragraph (a) of this section.
(d) In lieu of the work requirements in paragraphs (a), (b), and
(c) of this section, you may:
(1) Submit documentation to BLM that you have produced or utilized
geothermal resources in commercial quantities; or
(2) Make a payment to BLM equivalent to the required annual work
expenditure such that the total of the payment and the value of the
work you perform equals $15 or $25 per acre per year of land included
in your lease, as applicable. BLM may limit the number of years that it
will accept such payments if it determines that further payments in
lieu of the work requirements would impair achievement of diligent
development of the geothermal resources.
(e) Under paragraph (a) or paragraph (b) of this section, if you
expend an amount greater than the amount specified, you may apply any
payment in excess of the specified amount to any subsequent year within
the applicable 5-year extension of the primary term. An excess payment
during the first 5-year extension period may not be applied to any year
within the second 5-year extension period.
(f) You must submit information to BLM showing that you have
complied with the applicable requirements in this section no later
than:
(1) 60 days after the end of years 11, 12, 13, and 14;
(2) 60 days before the end of year 15; and
(3) 60 days after the end of years 16, 17, 18, and 19.
(g) In your submission, describe your activities by type, location,
date(s) conducted, and the dollar amount spent on those operations.
Include all geologic information obtained from your activities in your
report. We must approve the type of work done and the expenditures
claimed in your report before we can credit them toward your
requirements. We will notify you if you have not met the requirements.
(h) If you do not comply with the requirements of this section in
any year of a 5-year extension of the primary term, BLM will terminate
your lease at the end of that year unless you qualify for a drilling
extension under Sec. 3207.13.
(i) Every three calendar years the dollar amount of the work
requirements and the amount to be paid in lieu of such work required by
this section will automatically be updated. The update will be based on
the change in the Implicit Price Deflator-Gross Domestic Product for
those three years.
Sec. 3207.13 Must I comply with the requirements of Sec. Sec.
3207.11 and 3207.12 when my lease overlies a mining claim?
(a) BLM will exempt you from complying with the requirements of
Sec. Sec. 3207.11 and 3207.12 when you demonstrate to BLM that:
(1) The mining claim has a plan of operations approved by the
appropriate Federal land management agency; and
(2) Your development of the geothermal resource on the lease would
interfere with the mining operations.
(b) The exemption provided under paragraph (a) of this section
expires upon termination of the mining operations.
Sec. 3207.14 How do I qualify for a drilling extension?
(a) BLM will extend your lease for 5 years under a drilling
extension if at the end of the 10th year or any subsequent year of the
initial or additional extension of the primary term you:
(1) Have not met the requirements that you must satisfy for BLM to
grant or to continue the initial or additional extensions of your
primary lease term under Sec. 3207.12, or your lease is in its 20th
year;
(2) Commenced drilling a well before the end of such year for the
purposes of testing or producing a geothermal reservoir; and
(3) Are diligently drilling to a target that BLM determines is
adequate, based on the local geology and type of development you
propose.
(b) The drilling extension is effective on the first day following
the expiration or termination of the primary term.
(c) At the end of your drilling extension, your lease will expire
unless you qualify for a production extension under Sec. 3207.15.
Sec. 3207.15 How do I qualify for a production extension?
(a) BLM will grant a production extension of up to 35 years, if you
are producing or utilizing geothermal resources in commercial
quantities.
(b) Before granting a production extension, BLM must determine that
you:
(1) Have a well that is actually producing geothermal resources in
commercial quantities; or
(2)(i) Have completed a well that is capable of producing
geothermal resources in commercial quantities; and
(ii) Are making diligent efforts toward utilization of the
resource.
(c) To qualify for a production extension under paragraph (b)(2) of
this
[[Page 24411]]
section, unless BLM specifies otherwise you must demonstrate on an
annual basis that you are making diligent efforts toward utilization of
the resource.
(d) BLM will make the determinations required under paragraphs
(b)(1) and (b)(2)(i) of this section based on the information you
provide under subparts 3264 and 3276 and any other information that BLM
may require you to submit.
(e) For BLM to make the determination required under paragraph
(b)(2)(ii) of this section, you must provide BLM with information, such
as:
(1) Actions you have taken to identify and define the geothermal
resource on your lease;
(2) Actions you have taken to negotiate marketing arrangements,
sales contracts, drilling agreements, or financing for electrical
generation and transmission projects;
(3) Current economic factors and conditions that would affect the
decision of a prudent operator to produce or utilize geothermal
resources in commercial quantities on your lease; and
(4) Other actions you have taken, such as obtaining permits,
conducting environmental studies, and meeting permit requirements.
(f) Your production extension will begin on the first day of the
month following the end of the primary term (including the initial and
additional extensions) or the drilling extension.
(g) Your production extension will continue for up to 35 years as
long as the geothermal resource is being produced or utilized in
commercial quantities. If you fail to produce or utilize geothermal
resources in commercial quantities, BLM will terminate your lease
unless you meet the conditions set forth in Sec. 3212.15 or Sec.
3213.19.
Sec. 3207.16 When may my lease be renewed?
You have a preferential right to renew your lease for a second term
of up to 55 years, under such terms and conditions as BLM deems
appropriate, if at the end of the production extension you are
producing or utilizing geothermal resources in commercial quantities
and the lands are not needed for any other purpose. The renewal term
will continue for up to 55 years if you produce or utilize geothermal
resources in commercial quantities and satisfy other terms and
conditions BLM imposes.
Sec. 3207.17 How is the term of my lease affected by commitment to a
unit?
(a) If your lease is committed to a unit agreement and its term
would expire before the unit term would, BLM may extend your lease to
match the term of the unit. We will do this if unit development has
been diligently pursued while your lease is committed to the unit.
(b) To extend the term of a lease committed to a unit, the unit
operator must send BLM a request for lease extension at least 60 days
before the lease expires showing that unit development has been
diligently pursued. BLM may require additional information.
(c) Within 30 days after receiving your complete extension request,
BLM will notify the unit operator whether we approve.
Sec. 3207.18 Can my lease be extended if it is eliminated from a
unit?
If your lease is eliminated from a unit under Sec. 3283.6, it is
eligible for an extension if it meets the requirements for such
extension.
Subpart 3210--Additional Lease Information
Sec. 3210.10 When does lease segregation occur?
(a) Lease segregation occurs when:
(1) A portion of a lease is committed to a unit agreement while
other portions are not committed; or
(2) Only a portion of a lease remains in a participating area when
the unit contracts. The portions of the lease outside the participating
area are eliminated from the unit agreement and segregated as of the
effective date of the unit contraction.
(b) BLM will assign the original lease serial number to the portion
within the agreement. BLM will give the lease portion outside the
agreement a new serial number, and the same lease terms as the original
lease.
Sec. 3210.11 Does a lease segregated from an agreement or plan
receive any benefits from unitization of the committed portion of the
original lease?
The new segregated lease stands alone and does not receive any of
the benefits provided to the portion committed to the unit. We will not
give you an extension for the eliminated portion of the lease based on
status of the lands committed to the unit, including production in
commercial quantities or the existence of a producible well.
Sec. 3210.12 May I consolidate leases?
BLM may approve your consolidation of two or more adjacent leases
that have the same ownership and same lease terms, including expiration
dates, if the combined leases do not exceed the size limitations in
Sec. 3206.12. We may consolidate leases that have different
stipulations if all other lease terms are the same. You must include
the processing fee for lease consolidations found in the fee schedule
in Sec. 3000.12 of this chapter with your request to consolidate
leases.
Sec. 3210.13 Who may lease or locate other minerals on the same lands
as my geothermal lease?
Anyone may lease or locate other minerals on the same lands as your
geothermal lease. The United States reserves the ownership of and the
right to extract helium, oil, and hydrocarbon gas from all geothermal
steam and associated geothermal resources. In addition, BLM allows
mineral leasing or location on the same lands that are leased for
geothermal resources, provided that operations under the mineral
leasing or mining laws do not unreasonably interfere with or endanger
your geothermal operations.
Sec. 3210.14 May BLM readjust the terms and conditions in my lease?
(a)(1) Except for rentals and royalties (readjustments of which are
addressed in paragraph (b) of this section, BLM may readjust the terms
and conditions of your lease 10 years after you begin production of
geothermal resources from your lease, and at not less than 10-year
intervals thereafter, under the procedures of paragraphs (c), (d), and
(e) of this section.
(2) If another Federal agency manages the lands' surface, we will
ask that agency to review the related terms and conditions and propose
any readjustments. Once BLM and the surface managing agency reach
agreement and the surface managing agency approves the proposed
readjustment, we will follow the procedures in paragraphs (c), (d), and
(e) of this section.
(b) BLM may readjust your lease rentals and royalties at not less
than 20-year intervals beginning 35 years after we determine that your
lease is producing geothermal resources in commercial quantities. BLM
will not increase your rentals or royalties by more than 50 percent
over the rental or royalties you paid before the readjustment.
(c) BLM will give you a written proposal to readjust the rentals,
royalties, or other terms and conditions of your lease. You will have
30 days after you receive the proposal to file with BLM an objection in
writing to the proposed new terms and conditions.
(d) If you do not object in writing or relinquish your lease, you
will conclusively be deemed to have agreed
[[Page 24412]]
to the proposed new terms and conditions. BLM will issue a written
decision setting the date that the new terms and conditions become
effective as part of your lease. This decision will be in full force
and effect under its own terms, and you are not authorized to appeal
the BLM decision to the Office of Hearings and Appeals.
(e)(1) If you file a timely objection in writing, BLM may issue a
written decision making the readjusted terms and conditions effective
no sooner than 90 days after we receive your objections, unless we
reach an agreement with you as to the readjusted terms and conditions
of your lease that makes them effective sooner.
(2) If BLM does not reach an agreement with you by 60 days after we
receive your objections, then either the lessee or BLM may terminate
your lease, upon giving the other party 30 days' notice in writing. A
termination under this paragraph does not affect your obligations that
accrued under the lease when it was in effect, including those
specified in Sec. 3200.4.
Sec. 3210.15 What if I appeal BLM's decision to readjust my lease
terms?
If you appeal BLM's decision under Sec. 3210.14(e)(1) to readjust
the rentals, royalties, or other terms and conditions of your lease,
the decision is effective during the appeal. If you win your appeal and
we must change our decision, you will receive a refund or credit for
any overpaid rents or royalties.
Sec. 3210.16 How must I prevent drainage of geothermal resources from
my lease?
You must prevent the drainage of geothermal resources from your
lease by diligently drilling and producing wells that protect the
Federal geothermal resource from loss caused by production from other
properties.
Sec. 3210.17 What will BLM do if I do not protect my lease from
drainage?
BLM will determine the amount of geothermal resources drained from
your lease. MMS will bill you for a compensatory royalty based on our
findings. This royalty will equal the amount you would have paid for
producing those resources. All interest owners in a lease are jointly
and severally liable for drainage protection and any compensatory
royalties.
Subpart 3211--Filing and Processing Fees, Rent, Direct Use Fees,
and Royalties
Sec. 3211.10 What are the processing and filing fees for leases?
(a) Processing or filing fees are required for the following
actions:
(1) Nomination of lands for competitive leasing;
(2) Competitive lease application;
(3) Noncompetitive lease application (including application for
direct use leases);
(4) Assignment and transfer of record title or operating right;
(5) Name change, corporate merger, or transfer to heir/devisee;
(6) Lease consolidation; and
(7) Lease reinstatement.
(b) The amounts of these fees can be found in Sec. 3000.12 of this
chapter.
Sec. 3211.11 What are the annual lease rental rates?
(a) BLM calculates annual rent based on the amount of acreage
covered by your lease. To determine lease acreage for this section,
round up any partial acreage up to the next whole acre. For example,
the annual rent on a 2,456.39 acre lease is calculated based on 2,457
acres.
(b) For leases issued on or after August 8, 2005 (other than leases
issued in response to applications that were pending on that date for
which no election is made under Sec. 3200.8(b)(1)), and for leases
issued before August 8, 2005, for which an election is made under Sec.
3200.7(a)(2), the rental rate is as follows:
(1) If you obtained your lease through a competitive lease sale,
then your annual rent is $2 per acre for the first year, and $3 per
acre for the second through tenth year;
(2) If you obtained your lease noncompetitively, then your annual
rent is $1 per acre for the first 10 years; and
(3) After the tenth year, your annual rent will be $5 per acre,
regardless of whether you obtained your lease through a competitive
lease sale or noncompetitively.
(c) For leases issued before August 8, 2005, for which no election
is made under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on that date for which no election is made under
Sec. 3200.8(b)(1), the rental rate is the rate prescribed in the
regulations in effect on August 8, 2005 (43 CFR 3211.10 (2004)).
(d) For leases in which the United States owns only a fractional
interest in the geothermal resources, BLM will prorate the rents
established in paragraphs (a), (b), and (c) of this section, based on
the fractional interest owned by the United States. For example, if the
United States owns 50 percent of the geothermal resources in a 640 acre
lease, you pay rent based on 320 acres.
Sec. 3211.12 How and where do I pay my rent?
(a) First year. Pay BLM the first year's rent in advance. You may
use a personal check, cashier's check, or money order made payable to
the Department of the Interior--Bureau of Land Management. You may also
make payments by credit card or electronic funds transfer with our
prior approval.
(b) Subsequent years. For all subsequent years, make your rental
payments to MMS. See MMS regulations at 30 CFR part 218.
Sec. 3211.13 When is my annual rental payment due?
Your rent is always due in advance. MMS must receive your annual
rental payment by the anniversary date of the lease each year. See the
MMS regulations at 30 CFR part 218, which explain when MMS considers a
payment as received. If less than a full year remains on a lease, you
must still pay a full year's rent by the anniversary date of the lease.
For example, the rent on a 2,000-acre lease for the 11th year, would be
$10,000 ($5 per acre), due prior to the 10th anniversary of the lease.
Sec. 3211.14 Will I always pay rent on my lease?
(a) For leases issued on or after August 8, 2005 (other than leases
issued in response to applications that were pending on that date for
which no election is made under Sec. 3200.8(b)(1)), and for leases
issued before August 8, 2005, for which an election is made under Sec.
3200.7(a)(2), you must always pay rental, whether you are in a unit or
outside of a unit, whether your lease is in production or not, and
whether royalties or direct use fees apply to your production.
(b) For leases issued before August 8, 2005, for which no election
is made under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on that date for which no election is made under
Sec. 3200.8(b)(1), you must pay rent for all the lands in your lease
until:
(1) Your lease achieves production in commercial quantities, at
which time you pay royalties; or
(2) Lands in your lease are within the participating area of a unit
agreement or cooperative plan, at which time you pay rent for lands
outside the participating
[[Page 24413]]
area and pay royalties for lands within the participating area.
Sec. 3211.15 How do I credit rent towards royalty?
You may credit rental towards royalty under MMS regulations at 30
CFR 218.303.
Sec. 3211.16 Can I credit rent towards direct use fees?
No. You may not credit rental towards direct use fees. See MMS
regulations at 30 CFR 218.304.
Sec. 3211.17 What is the royalty rate on geothermal resources
produced from or attributable to my lease that are used for commercial
generation of electricity?
(a) For leases issued on or after August 8, 2005 (other than leases
issued in response to applications that were pending on that date for
which the lessee does not make an election under Sec. 3200.8(b)(1)),
the royalty rate is the rate prescribed in this paragraph.
(1) If you or your affiliate sell(s) electricity generated by use
of geothermal resources produced from or attributed to your lease,
then:
(i) For the first 10 years of production, the royalty rate is 1.75
percent;
(ii) After the first 10 years of production, the royalty rate is
3.5 percent; and
(iii) You must apply the rate established under this paragraph to
the gross proceeds derived from the sale of electricity under
applicable MMS rules at 30 CFR part 206, subpart H.
(2) If you or your affiliate sell(s) geothermal resources produced
from or attributed to your lease at arm's length to a purchaser who
uses those resources to generate electricity, then the royalty rate is
10 percent. You must apply that rate to the gross proceeds derived from
the arm's-length sale of the geothermal resources under applicable MMS
rules at 30 CFR part 206, subpart H.
(b) For leases issued before August 8, 2005, whose royalty terms
are modified to the terms prescribed in the Energy Policy Act of 2005
under Sec. 3212.25, BLM will establish royalty rates under paragraphs
(b)(1) and (b)(2) of this section.
(1) For leases that, prior to submitting a request to modify the
royalty rate terms of the lease under section 3212.26, produced
geothermal resources for the commercial generation of electricity, or
to which geothermal resource production for the commercial generation
of electricity was attributed:
(i) If you or your affiliate uses geothermal resources produced
from or attributed to your lease to generate and sell electricity, BLM
will establish a rate on a case-by-case basis that it expects will
yield total royalty payments over the life of the lease equivalent to
those that would have been paid under the royalty rate in effect for
the lease before August 5, 2005. The rate is not limited to the range
of rates specified in 30 U.S.C. 1004(a)(1). You must apply the rate
that BLM establishes to the gross proceeds derived from the sale of
electricity under applicable MMS rules at 30 CFR part 206, subpart H.
(ii) If you or your affiliate sells geothermal resources produced
from or attributed to your lease at arm's length to a purchaser who
uses those resources to generate electricity, the royalty rate is the
rate specified in the lease instrument. You must apply that rate to the
gross proceeds derived from the arm's-length sale of the geothermal
resources under applicable MMS rules at 30 CFR part 206, subpart H.
(2) For leases that, prior to submitting a request to modify the
royalty rate terms of the lease under section 3212.26, did not produce
geothermal resources for the commercial generation of electricity, and
to which geothermal resource production for the commercial generation
of electricity was not attributed, BLM will establish royalty rates
equal to those set forth in paragraph (a)(1) or (a)(2) of this section,
whichever is applicable.
(c) For leases issued before August 8, 2005, whose royalty terms
are not modified to the terms prescribed in the Energy Policy Act of
2005 under Sec. 3212.25, and for leases issued in response to
applications pending on that date for which the lessee does not make an
election under Sec. 3200.8(b)(1), the royalty rate is the rate
prescribed in the lease instrument.
Sec. 3211.18 What is the royalty rate on geothermal resources
produced from or attributable to my lease that are used directly for
purposes other than commercial generation of electricity?
(a) For leases issued on or after August 8, 2005 (other than leases
issued in response to applications that were pending on that date for
which the lessee does not make an election under Sec. 3200.8(b)), and
for leases issued before August 8, 2005, whose royalty terms are
modified to the terms prescribed in the Energy Policy Act of 2005 under
Sec. 3212.25:
(1) If you or your affiliate use(s) the geothermal resources
directly and do(es) not sell those resources at arm's length, no
royalty rate applies. Instead, you must pay direct use fees according
to a schedule published by MMS under MMS regulations at 30 CFR 206.356.
(2) If you or your affiliate sell(s) the geothermal resources at
arm's length to a purchaser who uses the resources for purposes other
than commercial generation of electricity, your royalty rate is 10
percent. You must apply that royalty rate to the gross proceeds derived
from the arm's-length sale under applicable MMS regulations at 30 CFR
part 206, subpart H.
(3) If you are a lessee and you are a state, tribal, or local
government, no royalty rate applies. Instead you must pay a nominal fee
established under MMS rules at 30 CFR 206.366.
(b) For leases issued before August 8, 2005, whose royalty terms
are not modified to the terms prescribed in the Energy Policy Act of
2005 under Sec. 3212.25, and for leases issued in response to
applications pending on that date for which the lessee does not make an
election under Sec. 3200.8(b), the royalty rate is the rate prescribed
in the lease instrument.
(c) For purposes of this section, direct use of geothermal
resources includes generation of electricity that is not sold
commercially and that is used solely for the operation of a facility
unrelated to commercial electrical generation.
Sec. 3211.19 What is the royalty rate on byproducts derived from
geothermal resources produced from or attributable to my lease?
(a) For leases issued on or after August 8, 2005 (other than leases
issued in response to applications that were pending on that date for
which no election is made under Sec. 3200.8(b)(1)), and for leases
issued before August 8, 2005, for which an election is made under Sec.
3200.7(a)(2):
(1) The royalty rate for byproducts derived from geothermal
resource production that are identified in Section 1 of the Mineral
Leasing Act (MLA), as amended (30 U.S.C. 181), is the royalty rate that
is prescribed in the MLA or in the regulations implementing the MLA for
production of that mineral under a lease issued under the MLA; and
(2) For a byproduct that is not identified in 30 U.S.C. 181, no
royalty is due.
(b) For leases issued before August 8, 2005, for which no election
is made under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on that date for which no election is made under
Sec. 3200.8(b)(1), the royalty on all byproducts is the rate
prescribed in the lease instrument, or if none is prescribed in the
lease instrument, the rate prescribed in 43 CFR 3211.10(b) (2004).
[[Page 24414]]
Sec. 3211.20 How do I credit advanced royalty towards royalty?
You may credit advanced royalty toward royalty under MMS
regulations at 30 CFR 218.305(c).
Sec. 3211.21 When do I owe minimum royalty?
(a) You do not owe minimum royalties for:
(1) Leases issued on or after August 8, 2005 (other than for leases
issued in response to applications that were pending on that date for
which no election is made under Sec. 3200.8(b)(1)); and
(2) Leases issued before August 8, 2005, for which an election is
made under Sec. 3200.7(a)(2).
(b) For leases issued before August 8, 2005, for which no election
is made under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on that date for which no election is made under
Sec. 3200.8(b)(1), you owe minimum royalty of $2.00 per acre (to be
paid to MMS) when:
(1) You have not begun actual production following the BLM's
determination that you have a well capable of commercial production; or
(2) The value of actual production is so low that royalty you would
pay under the scheduled rate is less than $2.00 per acre (this applies
to situations of no production, as long as the lease remains in
effect).
Subpart 3212--Lease Suspensions, Cessation of Production, Royalty
Rate Reductions, and Energy Policy Act Royalty Conversions
Sec. 3212.10 What is the difference between a suspension of
operations and production and a suspension of operations?
(a) A suspension of operations and production is a temporary relief
from production obligations which you may request from BLM. Under this
paragraph you must cease all operations on your lease.
(b) A suspension of operations is when BLM orders you, to stop
production temporarily in the interest of conservation.
Sec. 3212.11 How do I obtain a suspension of operations or a
suspension of operations and production on my lease?
(a) If you are the operator, you may request in writing that BLM
suspend your operations and production for a producing lease. Your
request must fully describe why you need the suspension. BLM will
determine if your suspension is justified and, if so, will approve it.
(b) BLM may suspend your operations on any lease in the interest of
conservation.
(c) A suspension under this section may include leases committed to
an approved unit agreement. If leases committed to a unit are
suspended, the unit operator must continue to satisfy unit terms and
obligations, unless BLM also suspends unit terms and obligations, in
whole or in part, under subpart 3287.
Sec. 3212.12 How long does a suspension of operations or a suspension
of operations and production last?
(a) BLM will state in your suspension notice how long your
suspension of operations or operations and production is effective.
(b) During a suspension, you may ask BLM in writing to terminate
your suspension. You may not unilaterally terminate a suspension that
BLM ordered. A suspension of operations and production that we approved
upon your request will automatically terminate when you begin or resume
authorized production or drilling operations.
(c) If we receive information showing that you must resume
operations to protect the interests of the United States, we will
terminate your suspension and order you to resume production.
(d) If a suspension terminates, you must resume paying rents and
royalty (see Sec. 3212.14).
Sec. 3212.13 How does a suspension affect my lease term and
obligations?
(a) If BLM approves a suspension of operations and production:
(1) Your lease term is extended by the length of time the
suspension is in effect; and
(2) You are not required to drill, produce geothermal resources, or
pay rents or royalties during the suspension. We will suspend your
obligation to pay lease rents or royalties beginning the first day of
the month following the date the suspension is effective.
(b) If BLM orders you to suspend your operations;
(1) Your lease term is extended by the length of time the
suspension is in effect; and
(2) Your lease rental or royalty obligations are not suspended,
except that BLM may suspend your rental or royalty obligations if you
will be denied all beneficial use of your lease during the period of
the suspension.
Sec. 3212.14 What happens when the suspension ends?
When the suspension ends, you must resume rental and royalty
payments that were suspended, beginning on the first day of the lease
month after BLM terminates the suspension. You must pay the full rental
amount due on or before the next lease anniversary date. If you do not
make the rental payments on time, BLM will refund your balance and
terminate the lease.
Sec. 3212.15 Will my lease remain in effect if I cease production and
I do not have an approved suspension?
In the absence of a suspension issued under Sec. 3212.11, if you
cease production for more than one calendar month on a lease that is
subject to royalties and that has achieved commercial production
(through actual or allocated production), your lease will remain in
effect only if the circumstances described in paragraphs (a), (b), or
(c) of this section apply:
(a)(1) For leases issued on or after August 8, 2005 (other than
leases issued in response to applications pending on that date for
which no election is made under Sec. 3200.8(b)(1)), and for leases
issued before August 8, 2005, for which an election is made under Sec.
3200.7(a)(2), your lease will remain in effect if, during the period in
which there is no production, you continue to pay a monthly advanced
royalty under MMS regulations at 30 CFR 218.305. This option is
available only for an aggregate of 10 years (120 months, whether
consecutive or not).
(2) For leases issued before August 8, 2005, for which no election
is made under Sec. 3200.7(a)(2), and for leases issued in response to
applications pending on August 8, 2005, for which no election is made
under Sec. 3200.8(b)(1), your lease will remain in effect if, during
the period in which there is no production you:
(i) Continue to make minimum royalty payments as specified in Sec.
3211.21(b) of this part;
(ii) Maintain a well capable of production in commercial
quantities;
(iii) Continue to make diligent efforts to utilize the geothermal
resource; and
(iv) Satisfy any other applicable requirements.
(b) The Secretary:
(1) Requires or causes the cessation of production; or
(2) Determines that the cessation in production is required or
otherwise caused by:
(i) The Secretary of the Air Force, Army, or Navy;
(ii) A state or a political subdivision of a state; or
(iii) Force majeure.
(c) The discontinuance of production is caused by the performance
of maintenance necessary to maintain operations. Such maintenance is
[[Page 24415]]
considered a production activity, not a cessation of production, and
maintenance may include activities such as overhauling your power
plant, re-drilling or re-working wells that are critical to plant
operation, or repairing and improving gathering systems or transmission
lines, that necessitate the discontinuation of production. You must
obtain BLM approval by submitting a Geothermal Sundry Notice if the
activity will require more than one calendar month, for it to be
classified as maintenance under this paragraph. The BLM must receive
the Geothermal Sundry Notice before the end of the first calendar month
in which there will be no production.
Sec. 3212.16 Can I apply to BLM to reduce, suspend, or waive the
royalty or rental of my lease?
(a) You may apply for a suspension, reduction, or waiver of your
rent or royalty for any lease or portion thereof. BLM may grant your
request in the interest of conservation and to encourage the greatest
ultimate recovery of geothermal resources, if we determine that:
(1) Granting the request is necessary to promote development; or
(2) You cannot successfully operate the lease under its current
terms.
(b) BLM will not approve a rental or royalty reduction, suspension,
or waiver unless all rental or royalty interest owners other than the
United States accept a similar reduction, suspension, or waiver.
Sec. 3212.17 What information must I submit when I request that BLM
suspend, reduce, or waive my royalty or rental?
(a) Your request for suspension, reduction, or waiver of the
royalty or rental must include all information BLM needs to determine
if the lease can be operated under its current terms, including:
(1) The type of reduction you seek;
(2) The serial number of your lease;
(3) The names and addresses of the lessee and operator;
(4) The location and status of wells;
(5) A summary of monthly production from your lease; and
(6) A detailed statement of expenses and costs.
(b) If you are applying for a royalty or rental reduction,
suspension, or waiver, you must also provide to BLM a list of names of
royalty and rental interest owners other than the United States, the
amounts of royalties or payments out of production and rent paid to
them, and every effort you have made to reduce these payments.
Sec. 3212.18 What are the production incentives for leases?
You will receive a production incentive in the form of a temporary
50 percent reduction in your royalties under MMS regulations at 30 CFR
218.307 if:
(a) Your lease was in effect prior to August 8, 2005;
(b) You do not convert the royalty rates of your lease under Sec.
3212.25;
(c) By August 7, 2011, production from or allocated to your lease
is utilized for commercial production in a:
(1) New facility (see Sec. 3212.22); or
(2) Qualified expansion project (see Sec. 3212.21); and
(d) The production from your lease is used for the commercial
generation of electricity.
Sec. 3212.19 How do I apply for a production incentive?
Submit to BLM a written request for a production incentive
describing a project that may qualify as a new facility or qualified
expansion project. Identify whether you are requesting that the project
be considered as a new facility (see Sec. 3212.22) or as a qualified
expansion project (see Sec. 3212.21) and explain why your project
qualifies under these regulations. The request must be received no
later than August 7, 2011.
Sec. 3212.20 How will BLM review my request for a production
incentive?
(a) BLM will review your request on a case-by-case basis to
determine whether your project meets the criteria for a qualified
expansion project under Sec. 3212.21 or a new facility under Sec.
3212.22. If it does not meet the criteria for the type of project you
requested, we will determine whether it meets the criteria for the
other type of production incentive project.
(b) If BLM determines that you have a qualified expansion project,
we will, as part of our approval, provide you with a schedule of
monthly target net generation amounts that you must exceed to qualify
for the production incentive. These amounts will quantify the required
10 percent increase in net generation over the projected net generation
without the project. The schedule will be specific to the facility or
facilities that are affected by the project and will cover the 48-month
time period during which your production incentive may apply.
(c) If BLM determines that you have met the criteria for a new
facility, we will provide you with written notification of this
determination.
Sec. 3212.21 What criteria establish a qualified expansion project
for the purpose of obtaining a production incentive?
A qualified expansion project must meet the following criteria:
(a) It must involve substantial capital expenditure. Examples
include the drilling of additional wells, retrofitting existing wells
and collection systems to increase production rates, retrofitting
turbines or power plant components to increase efficiency, adding
additional generation capacity to existing plants, and enhanced
recovery projects such as augmented injection. Projects that are not
associated with substantial capital expenditure, such as opening
production valves and operating existing equipment at higher rates, do
not qualify as expansion projects.
(b) The project must have the potential to increase the net
generation by more than 10 percent over the projected generation
without the project, using data from the previous 5 years. If 5 years
of data are not available, it is not a qualified expansion project.
Sec. 3212.22 What criteria establish a new facility for the purpose
of obtaining a production incentive?
(a) Criteria for determining whether a project is a new facility
for the purpose of obtaining a production incentive include:
(1) The project requires a new site license or facility
construction permit if it is on Federal lands;
(2) The project requires a new Commercial Use Permit;
(3) The project includes at least one new turbine-generator unit;
(4) The project involves a new sales contract;
(5) The project involves a new site or substantially larger
footprint; and
(6) The project is not contiguous to an existing project.
(b) Generally, a new facility will not:
(1) Be permitted only with a Geothermal Drilling Permit;
(2) Be constructed entirely within the footprint of an existing
facility; or
(3) Involve only well-field projects such as drilling new wells,
increasing injection, and enhanced recovery projects.
Sec. 3212.23 How will the production incentive apply to a qualified
expansion project?
(a) The production incentive will begin on the first day of the
month following the commencement of commercial operation of the
qualified expansion project. The incentive will be in effect for up to
48 consecutive months, applicable only to those months in which the
actual generation from the facility or facilities affected by
[[Page 24416]]
the project exceeds the target generation established by BLM. The
amount of the production incentive is established in MMS regulations at
30 CFR 218.307.
(b) The production incentive will apply only to the increase in net
generation. The increase in generation for any month in which the
production incentive is in effect will be determined as follows:
[GRAPHIC] [TIFF OMITTED] TR02MY07.002
where:
i is a month for which a production incentive is in effect;
[Delta]Gi is the increase in generation for month i to which the
production incentive applies;
Ga,i is the actual generation in month i;
Gt,i is the target generation in month i, as provided in
Sec. 3212.19(b).
Sec. 3212.24 How will the production incentive apply to a new
facility?
(a) If BLM determines that your project qualifies as a new
facility, the production incentive will begin on the first day of the
month following the commencement of commercial operations at that
facility, and will be in effect for 48 consecutive months. The
incentive applies to the entire commercial generation of electricity
from the new facility.
(b) The amount of the production incentive is established in MMS
regulations at 30 CFR 218.307.
Sec. 3212.25 Can I convert the royalty rate terms of my lease in
effect before August 8, 2005, to the terms of the Geothermal Steam Act,
as amended by the Energy Policy Act of 2005?
(a) If a lease was in effect before August 8, 2005, the lessee may
submit to BLM a request to modify the royalty rate terms of your lease
to the applicable royalty rate or direct use fee terms prescribed in
the Geothermal Steam Act as amended by the Energy Policy Act of 2005.
You may withdraw your request before it is granted, but once you accept
the new terms, you may not revert to the earlier royalty rates. If your
request to modify is granted, the new royalty rate or direct use fees
will apply to all geothermal resources produced from your lease for as
long as your lease remains in effect. A modification under this section
does not affect the royalty rate for byproducts.
(b)(1) The royalty rate for leases whose terms are modified and
production from which is used for commercial generation of electricity
is prescribed in Sec. 3211.17(b).
(2) The direct use fees or royalty rate for leases whose terms are
modified and production from which is used directly for purposes other
than commercial generation of electricity is prescribed in Sec.
3211.18(a) of this part and MMS regulations at 30 CFR 206.356.
Sec. 3212.26 How do I submit a request to modify the royalty rate
terms of my lease to the applicable terms prescribed in the Energy
Policy Act of 2005?
(a) You must submit a written request to BLM that contains the
serial numbers of the leases whose terms you wish to modify and:
(1) For direct use operations, any other information that BLM may
require; or
(2) For commercial electrical generation operations, for each month
during the 10-year period preceding the date of your request (or from
when electrical generation operations began if less than 10 years
before the date of your request):
(i) The gross proceeds received by you or your affiliate from the
sale of electricity;
(ii) The amount of royalty paid;
(iii) The amount of generating and transmission deductions
subtracted from the gross proceeds to derive the royalty value if you
are using the geothermal netback procedure under MMS regulations to
calculate royalty value; and
(iv) Any other information that BLM may require.
(b) BLM must receive your request no later than:
(1) For leases whose geothermal resource production is used
directly for purposes other than commercial generation of electricity,
18 months after the effective date of the schedule of fees established
by MMS under 30 CFR 206.356(b); or
(2) For leases whose geothermal resource production is used for
commercial generation of electricity, December 1, 2008.
Sec. 3212.27 How will BLM or MMS review my request to modify the
lease royalty rate terms?
After you submit your request to modify the royalty rate terms
under Sec. 3212.25, BLM will:
(a) Review your application, and if BLM determines that:
(1) Your application is complete and contains all necessary
information, we will notify you of the date on which your complete
request was received; or
(2) Your request is not complete or does not contain all necessary
information, we will notify you of the additional information that is
required;
(b) Analyze the data you submitted to establish a royalty rate if
the geothermal resources are used for commercial electrical generation;
(c) Consult with MMS and any state or local governments that may be
affected by the change in royalty rate terms; and
(d)(1) No later than 140 days after the day on which we determine a
complete request with all necessary information was received, BLM will
send you written notification of the proposed royalty rate that BLM
determines to be revenue neutral.
(2) If you reject the proposed rate, we must receive written
notification from you no later than 30 days after the date of your
receipt of our notification. BLM will accept a faxed notification
received within the 30-day time limit. However, following the fax, you
must submit to BLM written notification which BLM must receive no later
than the 179th day following the day on which BLM determines we
received your complete request.
(3) If you reject the proposed royalty rate on a timely basis:
(i) BLM will not issue a decision modifying the royalty rate terms
of your lease;
(ii) The existing royalty rate terms in your lease continue to
apply; and
(iii) You may not reapply for a royalty rate term conversion under
Sec. 3212.25.
(4) Unless timely written notification is received from you
rejecting the proposed rate, BLM will issue a decision modifying the
royalty rate terms of your lease no later than 180 days after the day
on which we determine a complete request was received. The effective
date of the new royalty rate is the first day of the month following
the date on which the decision was issued. For example, a decision
issued on July 21, will become effective on August 1.
Subpart 3213--Relinquishment, Termination, and Cancellation
Sec. 3213.10 Who may relinquish a lease?
Only the record title owner may relinquish a lease in full or in
part. If there is more than one record title owner for a lease, all
record title owners must sign the relinquishment.
Sec. 3213.11 What must I do to relinquish a lease?
Send BLM a written request that includes the serial number of each
lease you are relinquishing. If you are relinquishing the entire lease,
no legal description of the land is required. If you are relinquishing
part of the lease, you must describe the lands to be relinquished. BLM
may require additional information if necessary.
[[Page 24417]]
Sec. 3213.12 May BLM accept a partial relinquishment if it will
reduce my lease to less than 640 acres?
Except for direct use leases, lands remaining in your lease must
contain at least 640 acres, or all of your leased lands must be in one
section, whichever is less. Otherwise, we will not accept your partial
relinquishment. BLM will only allow an exception if it will further
development of the resource. The size of direct use leases is addressed
in Sec. 3205.07.
Sec. 3213.13 When does relinquishment take effect?
(a) If BLM determines your relinquishment request meets the
requirements of Sec. Sec. 3213.11 and 3213.12, your relinquishment is
effective the day we receive it.
(b) Notwithstanding the relinquishment, you and your surety
continue to be responsible for:
(1) Paying all rents and royalties due before the relinquishment
was effective;
(2) Plugging and abandoning all wells on the relinquished land;
(3) Restoring and reclaiming the surface and other resources; and
(4) Complying with Sec. 3200.4.
Sec. 3213.14 Will BLM terminate my lease if I do not pay my rent on
time?
(a) If MMS does not receive your second and subsequent year's
rental payment in full by the lease anniversary date, MMS will notify
you that the rent payment is overdue. You have 45 days after the
anniversary date to pay the rent plus a 10 percent late fee. If MMS
does not receive your rental plus the late fee by the end of the 45-day
period, BLM will terminate your lease.
(b) If you receive notification from MMS under paragraph (a) of
this section more than 15 days after the lease anniversary date, BLM
will reinstate a lease that was terminated under paragraph (a) of this
section if MMS receives the rent plus a 10 percent late fee within 30
days after you receive the notification.
Sec. 3213.15 How will BLM notify me if it terminates my lease?
BLM will send you a notice of the termination by certified mail,
return receipt requested.
Sec. 3213.16 May BLM cancel my lease?
(a) BLM may cancel your lease if it was issued in error.
(b) If BLM cancels your lease because it was issued in error, the
cancellation is effective when you receive it.
Sec. 3213.17 May BLM terminate my lease for reasons other than non-
payment of rentals?
BLM may terminate your lease for reasons other than non-payment of
rentals, after giving you 30 days written notice, if we determine that
you violated the requirements of Sec. 3200.4, including, but not
limited to the nonpayment of royalties and fees under 30 CFR parts 206
and 218.
Sec. 3213.18 When is a termination effective?
If BLM terminates your lease because we determined that you
violated the requirements of Sec. 3200.4, the termination takes effect
30 days after the date you receive notice of our determination.
Sec. 3213.19 What can I do if BLM notifies me that my lease is being
terminated because of a violation of the law, regulations, or lease
terms?
(a) You can prevent termination of your lease if, within 30 days
after receipt of our notice:
(1) You correct the violation; or
(2) You show us that you cannot correct the violation during the
30-day period and that you are making a good faith attempt to correct
the violation as quickly as possible, and thereafter you diligently
proceed to correct the violation.
(b)(1) You may appeal the lease termination. You have 30 days after
receipt of our notice to file an appeal (see parts 4 and 1840 of this
title). We will stay the termination of your lease while your appeal is
pending.
(2) You are entitled to a hearing on the violation or the proposed
lease termination if you request the hearing when you file the appeal.
The period for correction of the violation will be extended to 30 days
after the decision on appeal is made if the decision concludes that a
violation exists.
Subpart 3214--Personal and Surety Bonds
Sec. 3214.10 Who must post a geothermal bond?
(a) The lessee or operator must post a bond with BLM before
exploration, drilling, or utilization operations begin.
(b) Before we approve a lease transfer or recognize a new
designated operator, the lessee or operator must file a new bond or a
rider to the existing bond, unless all previous operations on the land
have already been reclaimed.
Sec. 3214.11 Who must my bond cover?
Your bond must cover all record title owners, operating rights
owners, operators, and any person who conducts operations on your
lease.
Sec. 3214.12 What activities must my bond cover?
Your bond must cover:
(a) Any activities related to exploration, drilling, utilization,
or associated operations on a Federal lease;
(b) Reclamation of the surface and other resources;
(c) Rental and royalty payments; and
(d) Compliance with the requirements of Sec. 3200.4.
Sec. 3214.13 What is the minimum dollar amount required for a bond?
The minimum bond amount varies depending on the type of activity
you are proposing and whether your bond will cover individual,
statewide, or nationwide activities. The minimum dollar amounts and
bonding options for each type of activity are found in the following
regulations:
(a) Exploration operations--see Sec. 3251.15;
(b) Drilling operations--see Sec. 3261.18; and
(c) Utilization operations--see Sec. Sec. 3271.12 and 3273.19.
Sec. 3214.14 May BLM increase the bond amount above the minimum?
(a) BLM may increase the bond amount above the minimums referenced
in Sec. 3214.13 when:
(1) We determine that the operator has a history of noncompliance;
(2) We previously had to make a claim against a surety because any
one person who is covered by the new bond failed to plug and abandon a
well and reclaim the surface in a timely manner;
(3) MMS has notified BLM that a person covered by the bond owes
uncollected royalties; or
(4) We determine that the bond amount will not cover the estimated
reclamation cost.
(b) We may increase bond amounts to any level, but we will not set
that amount higher than the total estimated costs of plugging wells,
removing structures, and reclaiming the surface and other resources,
plus any uncollected royalties due MMS or moneys owed to BLM due to
previous violations.
Sec. 3214.15 What kind of financial guarantee will BLM accept to back
my bond?
We will not accept cash bonds. We will only accept:
(a) Corporate surety bonds, provided that the surety company is
approved by the Department of Treasury (see Department of the Treasury
Circular No. 570, which is published in the Federal Register every year
on or about July 1); and
(b) Personal bonds, which are secured by a cashier's check,
certified check, certificate of deposit, negotiable securities such as
Treasury notes, or an
[[Page 24418]]
irrevocable letter of credit (see Sec. Sec. 3214.21 and 3214.22).
Sec. 3214.16 Is there a special bond form I must use?
You must use a BLM-approved bond form (Form 3000-4, or Form 3000-
4a, June 1988 or later editions) for corporate surety bonds and
personal bonds.
Sec. 3214.17 Where must I submit my bond?
File personal or corporate surety bonds and statewide bonds in the
BLM State Office that oversees your lease or operations. You may file
nationwide bonds in any BLM State Office. File bond riders in the BLM
State Office where your underlying bond is located. For personal or
corporate surety bonds, file one originally-signed copy of the bond.
Sec. 3214.18 Who will BLM hold liable under the lease and what are
they liable for?
BLM will hold all interest owners in a lease jointly and severally
liable for compliance with the requirements of Sec. 3200.4 for
obligations that accrue while they hold their interest. Among other
things, all interest owners are jointly and severally liable for:
(a) Plugging and abandoning wells;
(b) Reclaiming the surface and other resources;
(c) Compensatory royalties assessed for drainage; and
(d) Rent and royalties due.
Sec. 3214.19 What are my bonding requirements when a lease interest
is transferred to me?
(a) Except as otherwise provided in this section, if the lands to
be transferred to you contain a well or any other surface disturbance
which the original lessee did not reclaim, you must post a bond under
this subpart before BLM will approve the transfer.
(b) If the original lessee does not transfer all interest in the
lease to you, you may become a co-principal on the original bond,
rather than posting a new bond.
(c) You do not need to post an additional bond if:
(1) You previously furnished a statewide or nationwide bond
sufficient to cover the lands transferred; or
(2) The operator provided the original bond, and the operator does
not change.
Sec. 3214.20 How do I modify my bond?
You may modify your bond by submitting a rider to the BLM State
Office where your bond is held. There is no special form required.
Sec. 3214.21 What must I do if I want to use a certificate of deposit
to back my bond?
Your certificate of deposit must:
(a) Be issued by a Federally-insured financial institution
authorized to do business in the United States;
(b) Include on its face the statement, ``This certificate cannot be
redeemed by any party without approval by the Secretary of the Interior
or the Secretary's delegate;'' and
(c) Be payable to the Department of the Interior, Bureau of Land
Management.
Sec. 3214.22 What must I do if I want to use a letter of credit to
back my bond?
Your letter of credit must:
(a) Be issued by a Federally-insured financial institution
authorized to do business in the United States;
(b) Be payable to the Department of the Interior--Bureau of Land
Management;
(c) Be irrevocable during its term and have an initial expiration
date of no sooner than 1 year after the date we receive it;
(d) Be automatically renewable for a period of at least 1 year
beyond the end of the current term, unless the issuing financial
institution gives us written notice, at least 90 days before the letter
of credit expires, that it will no longer renew the letter of credit;
and
(e) Include a clause authorizing the Secretary of the Interior to
demand immediate payment, in part or in full:
(i) If you do not meet your obligations under the requirements of
Sec. 3200.4; or
(ii) Provide substitute security for a letter of credit which the
issuer has stated it will not renew before the letter of credit
expires.
Subpart 3215--Bond Release, Termination, and Collection
Sec. 3215.10 When may BLM collect against my bond?
If you fail to comply with the requirements listed at Sec. 3200.4,
we may collect money from the bond to correct your noncompliance. This
amount can be as large as the face amount of the bond. Some examples of
when we will collect against your bond are when you do not properly or
in a timely manner:
(a) Plug and abandon a well;
(b) Reclaim the lease area;
(c) Pay outstanding royalties; or
(d) Pay assessed royalties to compensate for drainage.
Sec. 3215.11 Must I replace my bond after BLM collects against it?
If BLM collects against your bond, before you conduct any further
operations you must either:
(a) Post a new bond equal to the value of the original bond; or
(b) Restore your existing bond to the original face amount.
Sec. 3215.12 What will BLM do if I do not restore the face amount or
file a new bond?
If we collect against your bond and you do not restore it to the
original face amount, we may shut in any well(s) or utilization
facilities covered by that bond and may terminate affected leases.
Sec. 3215.13 Will BLM terminate or release my bond?
(a) BLM does not cancel or terminate bonds. We may inform you that
your existing bond is insufficient.
(b) The bond provider may terminate your bond provided it gives you
and BLM 30-days notice. The bond provider remains responsible for
obligations that accrued during the period of liability while the bond
was in effect.
(c) BLM will release a bond, terminating all liability under that
bond, if:
(1) The new bond that you file covers all existing liabilities and
we accept it; or
(2) After a reasonable period of time, we determine that you paid
all royalties, rents, penalties, and assessments, and satisfied all
permit and lease obligations.
(d) If an adequate bond is not in place, do not conduct any
operations until you provide a new bond that meets our requirements.
Sec. 3215.14 When BLM releases my bond, does that end my
responsibilities?
When BLM releases your bond, we relinquish the security but we
continue to hold the lessee or operator responsible for noncompliance
with applicable requirements under the lease. Specifically, we do not
waive any legal claim we may have against any person under the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 (42 U.S.C. 9601 et seq.), or other laws and regulations.
Subpart 3216--Transfers
Sec. 3216.10 What types of lease interests may I transfer?
You may transfer record title or operating rights, but you need BLM
approval before your transfer is effective (see Sec. 3216.21).
Sec. 3216.11 Where must I file a transfer request?
File your transfer in the BLM State Office that handles your lease.
Sec. 3216.12 When does a transferee take responsibility for lease
obligations?
After BLM approves your transfer, the transferee is responsible for
performing all lease obligations accruing after the date of the
transfer, and for plugging
[[Page 24419]]
and abandoning wells which exist and are not plugged and abandoned at
the time of the transfer.
Sec. 3216.13 What are my responsibilities after I transfer my
interest?
After you transfer an interest in a lease you are still responsible
for rents, royalties, compensatory royalties, and other obligations
that accrued before your transfer became effective. You also remain
responsible for plugging and abandoning any wells that were drilled or
existing on the lease while you held your interest. You must carry out
this responsibility upon the BLM's determination at any future time
that the wells must be plugged and abandoned.
Sec. 3216.14 What filing fees and forms does a transfer require?
With each transfer request you must send BLM the correct form and
pay the transfer fee required by this section. When you calculate your
fee, make sure it covers the full amount. For example, if you are
transferring record title for three leases, submit $225 with the
application.
Use the following chart to determine the number and types of forms
required. The applicable transfer fees are in the fee schedule in Sec.
3000.12 of this chapter.
----------------------------------------------------------------------------------------------------------------
Type of transfer Form required? Form No. Number of copies
----------------------------------------------------------------------------------------------------------------
(a) Record Title.................. Yes.................. 3000-3............... 2 executed copies.
(b) Operating Rights.............. Yes.................. 3000-3(a)............ 2 executed copies.
(c) Estate Transfers.............. No................... N/A.................. 1 List of Leases.
(d) Corporate Mergers............. No................... N/A.................. 1 List of Leases.
(e) Name Changes.................. No................... N/A.................. 1 List of Leases.
----------------------------------------------------------------------------------------------------------------
Sec. 3216.15 When must I file my transfer request?
(a) File a request to transfer record title or operating rights
within 90 days after you sign an agreement with the transferee. If BLM
receives your request more than 90 days after signing, we may require
you to re-certify that you still intend to complete the transfer.
(b) There is no specific time deadline for filing estate transfers,
corporate mergers, and name changes. File them within a reasonable
time.
Sec. 3216.16 Must I file separate transfer requests for each lease?
File two copies of a separate request for each lease for which you
are transferring record title or operating rights. The only exception
is if you are transferring more than one lease to the same transferee,
in which case you file two copies of one transfer request.
Sec. 3216.17 Where must I file estate transfers, corporate mergers,
and name changes?
(a) If you have posted a bond for any Federal lease, you must file
estate transfers, corporate mergers, and name changes in the BLM State
Office that maintains your bond.
(b) If you have not posted a bond, you must file estate transfers,
corporate mergers, and name changes in the State Office having
jurisdiction over the lease.
Sec. 3216.18 How do I describe the lands in my lease transfer?
(a) If you are transferring an interest in your entire lease, you
do not need to give BLM a legal description of the land.
(b) If you are transferring an interest in a portion of your lease,
describe the lands that are transferred in the same way they are
described in the lease.
Sec. 3216.19 May I transfer record title interest for less than 640
acres?
Except for direct use leases, you may transfer record title
interest for less than 640 acres only if your transfer includes an
irregular subdivision or all of the lands in your lease are in a
section. We may make an exception to the minimum acreage requirements
if it is necessary to conserve the resource.
Sec. 3216.20 When does a transfer segregate a lease?
If you transfer 100 percent of the record title interest in a
portion of your lease, BLM will segregate the transferred portion from
the original lease and give it a new serial number with the same terms
and conditions as those in the original lease.
Sec. 3216.21 When is my transfer effective?
Your transfer is effective the first day of the month after we
approve it.
Sec. 3216.22 Does BLM approve all transfer requests?
BLM will not approve a transfer if:
(a) The lease account is not in good standing;
(b) The transferee does not qualify to hold a lease under this
part; or
(c) An adequate bond has not been provided.
Subpart 3217--Cooperative Agreements
Sec. 3217.10 What are unit agreements?
Under unit agreements, lessees unite with each other, or jointly or
separately with others, in collectively adopting and operating under
agreements to conserve the resources of any geothermal reservoir,
field, or like area, or any part thereof. BLM will only approve unit
agreements that we determine are in the public interest. Unit agreement
application procedures are provided in part 3280 of this chapter.
Sec. 3217.11 What are communitization agreements?
Under communitization agreements (also called drilling agreements),
operators who cannot independently develop separate tracts due to well-
spacing or well development programs may cooperatively develop such
tracts. Lessees may ask BLM to approve a communitization agreement or,
in some cases, we may require the lessees to enter into such an
agreement.
Sec. 3217.12 What does BLM need to approve my communitization
agreement?
For BLM to approve a communitization agreement, you must give us
the following information:
(a) The location of the separate tracts comprising the drilling or
spacing unit;
(b) How you will prorate production or royalties to each separate
tract based on total acres involved;
(c) The name of each tract operator; and
(d) Provisions for protecting the interests of all parties,
including the United States.
Sec. 3217.13 When does my communitization agreement go into effect?
(a) Your communitization agreement is effective when BLM approves
and signs it.
(b) Before we approve the agreement:
(1) All parties must sign the agreement; and
(2)(i) We must determine that the tracts cannot be independently
developed; and
(ii) That the agreement is in the public interest.
[[Page 24420]]
Sec. 3217.14 When will BLM approve my drilling or development
contract?
BLM may approve a drilling or development contract when:
(a) One or more geothermal lessees enter into the contract with one
or more persons; or
(b) Lessees need the contract for regional exploration of
geothermal resources;
(c) BLM has coordinated the review of the proposed contract with
appropriate state agencies; and
(d) BLM determines that approval best serves or is necessary for
the conservation of natural resources, public convenience or necessity,
or the interests of the United States.
Sec. 3217.15 What does BLM need to approve my drilling or development
contract?
For BLM to approve your drilling or development contract, you must
send us:
(a) The contract and a statement of why you need it;
(b) A statement of all interests held by the contracting parties in
that geothermal area or field;
(c) The type of operations and schedule set by the contract;
(d) A statement that the contract will not violate Federal
antitrust laws by concentrating control over the production or sale of
geothermal resources; and
(e) Any other information we may require to make a decision about
the contract or to attach conditions of approval.
Subpart 3250--Exploration Operations--General
Sec. 3250.10 When do the exploration operations regulations apply?
(a) The exploration operations regulations contained in this
subpart and subparts 3251 through 3256 apply to geothermal exploration
operations:
(1) On BLM-administered public lands, whether or not they are
leased for geothermal resources; and
(2) On lands whose surface is managed by another Federal agency,
where BLM has leased the subsurface geothermal resources and the lease
operator wishes to conduct exploration. In this case, we will consult
with the surface managing agency regarding surface use and reclamation
requirements before we approve the exploration operations.
(b) These regulations do not apply to:
(1) Unleased land administered by another Federal agency;
(2) Unleased geothermal resources whose surface land is managed by
another Federal agency;
(3) Privately owned land; or
(4) Casual use activities.
Sec. 3250.11 May I conduct exploration operations on my lease,
someone else's lease, or unleased land?
(a) You may request BLM approval to explore any BLM-managed public
lands open to geothermal leasing, even if the lands are leased to
another person. A BLM-approved exploration permit does not give you
exclusive rights.
(b) If you wish to conduct operations on your lease, you may do so
after we have approved your Notice of Intent to Conduct Geothermal
Resource Exploration Operations. If the lands are already leased, your
operations may not unreasonably interfere with or endanger those other
operations or other authorized uses, or cause unnecessary or undue
degradation of the lands.
Sec. 3250.12 What general standards apply to exploration operations?
BLM-approved exploration operations must:
(a) Meet all operational and environmental standards;
(b) Protect public health, safety, and property;
(c) Prevent unnecessary impacts on surface and subsurface
resources;
(d) Be conducted in a manner consistent with the principles of
multiple use; and
(e) Comply with the requirements of Sec. 3200.4.
Sec. 3250.13 What additional BLM orders or instructions govern
exploration?
BLM may issue the following types of orders or instructions:
(a) Geothermal resource operational orders that contain detailed
requirements of nationwide applicability;
(b) Notices to lessees that contain detailed requirements on a
statewide or regional basis;
(c) Other orders and instructions specific to a field or area;
(d) Conditions of approval contained in an approved Notice of
Intent; and
(e) Verbal orders that BLM will confirm in writing.
Sec. 3250.14 What types of operations may I propose in my application
to conduct exploration?
(a) You may propose any activity fitting the definition of
``exploration operations'' in Sec. 3200.1. Submit Form 3200-9, Notice
of Intent to Conduct Geothermal Resource Exploration Operations,
together with the information required under Sec. 3251.11, and BLM
will review your proposal.
(b) The exploration operations regulations do not address drilling
wells intended for production or injection, which is covered in subpart
3260, or geothermal resources utilization, which is covered in subpart
3270.
Subpart 3251--Exploration Operations: Getting BLM Approval
Sec. 3251.10 Do I need a permit before I start exploration
operations?
BLM must approve a Notice of Intent to Conduct Geothermal Resource
Exploration Operations (NOI) before you conduct exploration operations.
The approved NOI, including any necessary conditions for approval,
constitutes your permit.
Sec. 3251.11 What information is in a complete Notice of Intent to
Conduct Geothermal Resource Exploration Operations application?
To obtain approval of exploration operations on BLM-managed lands,
your application must:
(a) Include a complete and signed Form 3200-9, Notice of Intent to
Conduct Geothermal Resource Exploration Operations that describes the
lands you wish to explore;
(b) For operations other than drilling temperature gradient wells,
describe your exploration plans and procedures, including the
approximate starting and ending dates for each phase of operations;
(c) For drilling temperature gradient wells, describe your drilling
and completion procedures, and include, for each well or for several
wells you propose to drill in an area of geologic and environmental
similarity:
(1) A detailed description of the equipment, materials, and
procedures you will use;
(2) The depth of each well;
(3) The casing and cementing program;
(4) The circulation media (mud, air, foam, etc.);
(5) A description of the logs that you will run;
(6) A description and diagram of the blowout prevention equipment
you will use during each phase of drilling;
(7) The expected depth and thickness of fresh water zones;
(8) Anticipated lost circulation zones;
(9) Anticipated temperature gradient in the area;
(10) Well site layout and design;
(11) Existing and planned access roads or ancillary facilities; and
(12) Your source of drill pad and road building material and water
supply.
(d) Show evidence of bond coverage (see Sec. 3251.15);
(e) Estimate how much surface disturbance your exploration may
cause;
[[Page 24421]]
(f) Describe the proposed measures you will take to protect the
environment and other resources;
(g) Describe methods to reclaim the surface; and
(h) Include all other information BLM may require.
Sec. 3251.12 What action will BLM take on my Notice of Intent to
Conduct Geothermal Resource Exploration Operations?
(a) When BLM receives your Notice of Intent to Conduct Geothermal
Resource Exploration Operations, we will make sure it is complete and
signed, and review it for compliance with the requirements of Sec.
3200.4.
(b) If the proposed operations are located on lands described under
Sec. 3250.10(a)(2), we will consult with the Federal surface
management agency before approving your Notice of Intent.
(c) We will check your Notice of Intent for technical adequacy and
we may require additional information.
(d) We will notify you if we need more information to process your
Notice of Intent, and suspend the review of your Notice of Intent until
we receive the information.
(e) After our review, we will notify you whether we approved or
denied your Notice of Intent and of any conditions of approval.
Sec. 3251.13 Once I have an approved Notice of Intent, how can I
change my exploration operations?
Send BLM a complete and signed Form 3260-3, Geothermal Sundry
Notice, which fully describes the requested changes. Do not proceed
with the change in operations until you receive written approval from
BLM.
Sec. 3251.14 Do I need a bond for conducting exploration operations?
(a) You must not start any exploration operations on BLM-managed
lands until we approve your bond. You may meet the requirement for an
exploration bond in two ways:
(1) If you have an existing nationwide or statewide oil and gas
exploration bond, provide a rider in an amount we have specified to
include geothermal resources exploration operations; or
(2) If you must file a new bond for geothermal exploration, the
minimum amounts are:
(i) $5,000 for a single operation;
(ii) $25,000 for all of your operations within a state; and
(iii) $50,000 for all of your operations on public lands
nationwide.
(b) See subparts 3214 and 3215 for additional details on bonding
procedures.
Sec. 3251.15 When will BLM release my bond?
BLM will release your bond after you request it and we determine
that you have:
(a) Plugged and abandoned all wells;
(b) Reclaimed the land and, if necessary, resolved other
environmental, cultural, scenic, or recreational issues; and
(c) Complied with the requirements of Sec. 3200.4.
Subpart 3252--Conducting Exploration Operations
Sec. 3252.10 What operational standards apply to my exploration
operations?
You must keep exploration operations under control at all times by:
(a) Conducting training during your operation to ensure that your
personnel are capable of performing emergency procedures quickly and
effectively;
(b) Using properly maintained equipment; and
(c) Using operational practices that allow for quick and effective
emergency response.
Sec. 3252.11 What environmental requirements must I meet when
conducting exploration operations?
(a) You must conduct your exploration operations in a manner that:
(1) Protects the quality of surface and subsurface waters, air, and
other natural resources, including wildlife, soil, vegetation, and
natural history;
(2) Protects the quality of cultural, scenic, and recreational
resources;
(3) Accommodates other land uses, as BLM deems necessary; and
(4) Minimizes noise.
(b) You must remove or, with our permission, properly store all
equipment and materials not in use.
(c) You must provide and use pits, tanks, and sumps of adequate
capacity. They must be designed to retain all materials and fluids
resulting from drilling temperature gradient wells or other operations,
unless we have specified otherwise in writing. When they are no longer
needed, you must properly abandon pits and sumps in accordance with
your exploration permit.
(d) BLM may require you to submit a contingency plan describing
procedures to protect public health, safety, property, and the
environment.
Sec. 3252.12 How deep may I drill a temperature gradient well?
(a) You may drill a temperature gradient well to any depth that we
approve in your exploration permit or sundry notice. In all cases, you
may not flow test the well or perform injection tests of the well
unless you follow the procedures for geothermal drilling operations in
subparts 3260 through 3267.
(b) BLM may modify your permitted depth at any time before or
during drilling, if we determine that the bottom hole temperature or
other information indicates that drilling to the original permitted
depth could directly encounter the geothermal resource or create risks
to public health, safety, property, the environment, or other
resources.
Sec. 3252.13 How long may I collect information from my temperature
gradient well?
You may collect information from your temperature gradient well for
as long as your permit allows.
Sec. 3252.14 How must I complete a temperature gradient well?
Complete temperature gradient wells to allow for proper
abandonment, and to prevent interzonal migration of fluids. Cap all
tubing when not in use.
Sec. 3252.15 When must I abandon a temperature gradient well?
When you no longer need it, or when BLM requires you to.
Sec. 3252.16 How must I abandon a temperature gradient well?
(a) Before abandoning your well, submit a complete and signed
Sundry Notice, Form 3260-3, describing how you plan to abandon wells
and reclaim the surface. Do not begin abandoning wells or reclaiming
the surface until BLM approves your Sundry Notice.
(b) You must plug and abandon your well for permanent prevention of
interzonal migration of fluids and migration of fluids to the surface.
You must reclaim your well location according to the terms of BLM
approvals and orders.
Subpart 3253--Reports: Exploration Operations
Sec. 3253.10 Must I share with BLM the data I collect through
exploration operations?
(a) For exploration operations on your geothermal lease, you must
submit all data you obtain as a result of the operations with a signed
notice of completion of exploration operations under Sec. 3253.11,
unless we approve a later submission.
(b) For exploration operations on unleased lands or on leased lands
where you are not the lessee or unit operator, you are not required to
submit data. However, if you want your exploration operations to count
toward your diligent exploration expenditure requirement
[[Page 24422]]
(see Sec. 3210.13), or if you are making significant expenditures to
extend your lease (see Sec. 3208.14), you must send BLM the resulting
data under the rules of those sections.
Sec. 3253.11 Must I notify BLM when I have completed my exploration
operations?
After you complete exploration operations, send to BLM a complete
and signed notice of completion of exploration operations, describing
the exploration operations, well history, completion and abandonment
procedures, and site reclamation measures. You must send this to BLM
within 30 days after you:
(a) Complete any geophysical exploration operations;
(b) Complete the drilling of temperature gradient well(s) approved
under your approved Notice of Intent to conduct exploration;
(c) Plug and abandon a temperature gradient well; and
(d) Plug shot holes and reclaim all exploration sites.
Subpart 3254--Inspection, Enforcement, and Noncompliance for
Exploration Operations
Sec. 3254.10 May BLM inspect my exploration operations?
BLM may inspect your exploration operations to ensure compliance
with the requirements of Sec. 3200.4 and the regulations in this
subpart.
Sec. 3254.11 What will BLM do if my exploration operations are not in
compliance with my permit, other BLM approvals or orders, or the
regulations in this part?
(a) BLM will issue you a written Incident of Noncompliance and
direct you to correct the problem within a set time. If the
noncompliance continues or is serious in nature, we will take one or
more of the following actions:
(1) Correct the problem at your expense;
(2) Direct you to modify or shut down your operations; or
(3) Collect all or part of your bond.
(b) We may also require you to take actions to prevent unnecessary
impacts on the lands. If so, we will notify you of the nature and
extent of any required measures and the time you have to complete them.
(c) Noncompliance may result in BLM terminating your lease, if
appropriate under Sec. Sec. 3213.17 through 3213.19.
Subpart 3255--Confidential, Proprietary Information
Sec. 3255.10 Will BLM disclose information I submit under these
regulations?
All Federal and Indian data and information submitted to the BLM
are subject to part 2 of this title. Part 2 includes the regulations of
the Department of the Interior covering public disclosure of data and
information contained in Department records. Certain mineral
information not protected from disclosure under part 2 may be made
available for inspection without a Freedom of Information Act (FOIA)
request.
Sec. 3255.11 When I submit confidential, proprietary information, how
can I help ensure it is not available to the public?
When you submit data and information that you believe to be exempt
from disclosure by 43 CFR part 2, you must clearly mark each page that
you believe contains confidential information. BLM will keep all data
and information confidential to the extent allowed by 43 CFR 2.13(c).
Sec. 3255.12 How long will information I give BLM remain confidential
or proprietary?
The FOIA (5 U.S.C. 552) does not provide a finite period of time
during which information may be exempt from public disclosure. BLM will
review each situation individually and in accordance with part 2 of
this title.
Sec. 3255.13 How will BLM treat Indian information submitted under
the Indian Mineral Development Act?
Under the Indian Mineral Development Act of 1982 (IMDA) (25 U.S.C.
2101 et seq.), the Department of the Interior will hold as privileged
proprietary information of the affected Indian or Indian tribe:
(a) All findings forming the basis of the Secretary's intent to
approve or disapprove any Minerals Agreement under IMDA; and
(b) All projections, studies, data, or other information concerning
a Minerals Agreement under IMDA, regardless of the date received,
related to:
(1) The terms, conditions, or financial return to the Indian
parties;
(2) The extent, nature, value, or disposition of the Indian mineral
resources; or
(3) The production, products, or proceeds thereof.
Sec. 3255.14 How will BLM administer information concerning other
Indian minerals?
For information concerning Indian minerals not covered by Sec.
3255.13, BLM will withhold such records as may be withheld under an
exemption to the FOIA when it receives a request for information
related to tribal or Indian minerals held in trust or subject to
restrictions on alienation.
Sec. 3255.15 When will BLM consult with Indian mineral owners when
information concerning their minerals is the subject of a FOIA request?
(a) We use the standards and procedures of Sec. 2.15(d) of this
title before making a decision about the applicability of FOIA
exemption 4 to information obtained from a person outside the United
States Government.
(b) BLM will notify the Indian mineral owner(s) identified in the
records of the Bureau of Indian Affairs (BIA), and BIA, and give them a
reasonable period of time to state objections to disclosure. BLM will
issue this notice following consultation with a submitter under Sec.
2.15(d) of this title if:
(1) BLM determines that the submitter does not have an interest in
withholding the records that can be protected under FOIA; and
(2) BLM has reason to believe that disclosure of the information
may result in commercial or financial injury to the Indian mineral
owner(s), but is uncertain that such is the case.
Subpart 3256--Exploration Operations Relief and Appeals
Sec. 3256.10 How do I request a variance from BLM requirements that
apply to my exploration operations?
(a) You may submit a request for a variance for your exploration
operations from any requirement in Sec. 3200.4. Your request must
include enough information to explain:
(1) Why you cannot comply with the regulatory requirement; and
(2) Why you need the variance to control your well, conserve
natural resources, or protect public health and safety, property, or
the environment.
(b) BLM may approve your request orally or in writing. If we give
you an oral approval, we will follow up with written confirmation.
Sec. 3256.11 How may I appeal a BLM decision regarding my exploration
operations?
You may appeal a BLM decision regarding your exploration operations
in accordance with Sec. 3200.5.
Subpart 3260--Geothermal Drilling Operations--General
Sec. 3260.10 What types of geothermal drilling operations are covered
by these regulations?
(a) The regulations in subparts 3260 through 3267 establish
permitting and
[[Page 24423]]
operating procedures for drilling wells and conducting related
activities for the purposes of performing flow tests, producing
geothermal fluids, or injecting fluids into a geothermal reservoir.
These subparts also address redrilling, deepening, plugging back, and
other subsequent well operations.
(b) The operations regulations in subparts 3260 through 3267 do not
address conducting exploration operations, which are covered in subpart
3250, or geothermal resources utilization, which is covered in subpart
3270.
Sec. 3260.11 What general standards apply to my drilling operations?
Your drilling operations must:
(a) Meet all environmental and operational standards;
(b) Prevent unnecessary impacts on surface and subsurface
resources;
(c) Conserve geothermal resources and minimize waste;
(d) Protect public health, safety, and property; and
(e) Comply with the requirements of Sec. 3200.4.
Sec. 3260.12 What other orders or instructions may BLM issue?
BLM may issue:
(a) Geothermal resource operational orders for detailed
requirements that apply nationwide;
(b) Notices to Lessees for detailed requirements on a statewide or
regional basis;
(c) Other orders and instructions specific to a field or area;
(d) Permit conditions of approval; and
(e) Oral orders, which will be confirmed in writing.
Subpart 3261--Drilling Operations: Getting a Permit
Sec. 3261.10 How do I get approval to begin well pad construction?
(a) If you do not have an approved geothermal drilling permit, Form
3260-2, apply using a completed and signed Sundry Notice, Form 3260-3,
to build well pads and access roads. Send us a complete operations plan
(see Sec. 3261.12) and an acceptable bond with your Sundry Notice. You
may start well pad construction after we approve your Sundry Notice.
(b) If you already have an approved drilling permit and you have
provided an acceptable bond, you do not need any further permission
from BLM to start well pad construction, unless you intend to change
something in the approved permit. If you propose a change in an
approved permit, send us a completed and signed Sundry Notice so we may
review your proposed change. Do not proceed with the change until we
approve your Sundry Notice.
Sec. 3261.11 How do I apply for approval of drilling operations and
well pad construction?
(a) Send to BLM:
(1) A completed and signed drilling permit application, Form 3260-
2;
(2) A complete operations plan (Sec. 3261.12);
(3) A complete drilling program (Sec. 3261.13); and
(4) An acceptable bond (Sec. 3261.18).
(b) Do not start any drilling operations until after BLM approves
the permit.
Sec. 3261.12 What is an operations plan?
An operations plan describes how you will drill for and test the
geothermal resources covered by your lease. Your plan must tell BLM
enough about your proposal to allow us to assess the environmental
impacts of your operations. This information should generally include:
(a) Well pad layout and design;
(b) A description of existing and planned access roads;
(c) A description of any ancillary facilities;
(d) The source of drill pad and road building material;
(e) The water source;
(f) A statement describing surface ownership;
(g) A description of procedures to protect the environment and
other resources;
(h) Plans for surface reclamation; and
(i) Any other information that BLM may require.
Sec. 3261.13 What is a drilling program and how do I apply for
drilling program approval?
(a) A drilling program describes all the operational aspects of
your proposal to drill, complete, and test a well.
(b) Send to BLM:
(1) A detailed description of the equipment, materials, and
procedures you will use;
(2) The proposed/anticipated depth of the well;
(3) If you plan to directionally drill your well, also send us:
(i) The proposed bottom hole location and distances from the
nearest section or tract lines;
(ii) The kick-off point;
(iii) The direction of deviation;
(iv) The angle of build-up and maximum angle; and
(v) Plan and cross section maps indicating the surface and bottom
hole locations;
(4) The casing and cementing program;
(5) The circulation media (mud, air, foam, etc.);
(6) A description of the logs that you will run;
(7) A description and diagram of the blowout prevention equipment
you will use during each phase of drilling;
(8) The expected depth and thickness of fresh water zones;
(9) Anticipated lost circulation zones;
(10) Anticipated reservoir temperature and pressure;
(11) Anticipated temperature gradient in the area;
(12) A plat certified by a licensed surveyor showing the surveyed
surface location and distances from the nearest section or tract lines;
(13) Procedures and durations of well testing; and
(14) Any other information we may require.
Sec. 3261.14 When must I give BLM my operations plan?
Send us a complete operations plan before you begin any surface
disturbance on a lease. You do not need to submit an operations plan
for subsequent well operations or altering existing production
equipment, unless these activities will cause more surface disturbance
than originally approved, or we notify you that you must submit an
operations plan. Do not start any activities that will result in
surface disturbance until we approve your drilling permit or Sundry
Notice.
Sec. 3261.15 Must I give BLM my drilling permit application, drilling
program, and operations plan at the same time?
You may submit your completed and signed drilling permit
application and complete drilling program and operations plan either
together or separately.
(a) If you submit them together and we approve your drilling
permit, the approved drilling permit will authorize both the pad
construction and the drilling and testing of the well.
(b) If you submit the operations plan separately from the drilling
permit application and program, you must:
(1) Submit the operations plan before the drilling permit
application and drilling program to allow BLM time to comply with
National Environmental Policy Act (NEPA); and
(2) Submit a completed and signed Sundry Notice for well pad and
access road construction. Do not begin construction until we approve
your Sundry Notice.
Sec. 3261.16 Can my operations plan, drilling permit, and drilling
program apply to more than one well?
(a) Your operations plan and drilling program can sometimes be
combined to cover several wells, but your drilling
[[Page 24424]]
permit cannot. To include more than one well in your operations plan,
give us adequate information for all well sites, and we will combine
your plan to cover those well sites that are in areas of similar
geology and environment.
(b) Your drilling program may also apply to more than one well,
provided you will drill the wells in the same manner, and you expect to
encounter similar geologic and reservoir conditions.
(c) You must submit a separate geothermal drilling permit
application for each well.
Sec. 3261.17 How do I amend my operations plan or drilling permit?
(a) If BLM has not yet approved your operations plan or drilling
permit, send us your amended plan and completed and signed permit
application.
(b) To amend an approved operations plan or drilling permit, submit
a completed and signed Sundry Notice describing your proposed change.
Do not start any amended operations until after BLM approves your
drilling permit or Sundry Notice.
Sec. 3261.18 Do I need to file a bond with BLM before I build a well
pad or drill a well?
Before starting any operation, you must:
(a) File with BLM either a surety or personal bond in the following
minimum amount:
(1) $10,000 for a single lease;
(2) $50,000 for all of your operations within a state; or
(3) $150,000 for all of your operations nationwide;
(b) Get our approval of your surety or personal bond; and
(c) To cover any drilling operations on all leases committed to a
unit, either submit a bond for that unit in an amount we specify, or
provide a rider to a statewide or nationwide bond specifically covering
the unit in an amount we specify.
(d) See subparts 3214 and 3215 for additional details on bonding
procedures.
Sec. 3261.19 When will BLM release my bond?
BLM will release your bond after you request it and we determine
that you have:
(a) Plugged and abandoned all wells;
(b) Reclaimed the surface and other resources; and
(c) Met all the requirements of Sec. 3200.4.
Sec. 3261.20 How will BLM review applications submitted under this
subpart and notify me of its decision?
(a) When we receive your operations plan, we will make sure it is
complete and review it for compliance with the requirements of Sec.
3200.4.
(b) If another Federal agency manages the surface of your lease, we
will consult with it before we approve your drilling permit.
(c) We will review your drilling permit and drilling program or
your Sundry Notice for well pad construction, to make sure they conform
with your operations plan and any mitigation measures we developed
while reviewing your plan.
(d) We will check your drilling permit and drilling program for
technical adequacy and may require additional information.
(e) We will check your drilling permit for compliance with the
requirements of Sec. 3200.4.
(f) If we need any further information to complete our review, we
will contact you in writing and suspend our review until we receive the
information.
(g) After our review, we will notify you as to whether your permit
has been approved or denied, as well as any conditions of approval.
Sec. 3261.21 How do I get approval to change an approved drilling
operation?
(a) Send BLM a Sundry Notice, form 3260-3, describing the proposed
changes. Do not proceed with the changes until we have approved them in
writing, except as provided in paragraph (c) of this section. If your
operations such as redrilling, deepening, drilling a new directional
leg, or plugging back a well would significantly change your approved
permit, BLM may require you to send us a new drilling permit (see 43
CFR 3261.13). A significant change would be, for example, redrilling
the well to a completely different target, especially a target in an
unknown area.
(b) If your changed drilling operation would cause additional
surface disturbance, we may also require you to submit an amended
operations plan.
(c) If immediate action is required to properly continue drilling
operations, or to protect public health, safety, property or the
environment, BLM may provide oral approval to change an approved
drilling operation. However, you must submit a written Sundry Notice
within 48 hours after we orally approve your change.
Sec. 3261.22 How do I get approval for subsequent well operations?
Send BLM a Sundry Notice describing your proposed operation. For
some routine work, such as cleanouts, surveys, or general maintenance
(see Sec. 3264.11(b)), we may waive the Sundry Notice requirement.
Contact your local BLM office to ask about waivers for subsequent well
operations. Unless you receive a waiver, you must submit a Sundry
Notice. Do not start your operations until we grant a waiver or approve
the Sundry Notice.
Subpart 3262--Conducting Drilling Operations
Sec. 3262.10 What operational requirements must I meet when drilling
a well?
(a) When drilling a well, you must:
(1) Keep the well under control at all times by:
(i) Conducting training during your operation to maintain the
capability of your personnel to perform emergency procedures quickly
and effectively;
(ii) Using properly maintained equipment; and
(iii) Using operational practices that allow for quick and
effective emergency response.
(b) You must use sound engineering principles and take into account
all pertinent data when:
(1) Selecting and using drilling fluid types and weights;
(2) Designing and implementing a system to control fluid
temperatures;
(3) Designing and using blowout prevention equipment; and
(4) Designing and implementing a casing and cementing program.
(c) Your operation must always comply with the requirements of
Sec. 3200.4.
Sec. 3262.11 What environmental requirements must I meet when
drilling a well?
(a) You must conduct your operations in a manner that:
(1) Protects the quality of surface and subsurface water, air,
natural resources, wildlife, soil, vegetation, and natural history;
(2) Protects the quality of cultural, scenic, and recreational
resources;
(3) Accommodates, as necessary, other land uses;
(4) Minimizes noise; and
(5) Prevents property damage and unnecessary or undue degradation
of the lands.
(b) You must remove or, with BLM's approval, properly store all
equipment and materials that are not in use.
(c) You must retain all fluids from drilling and testing the well
in properly designed pits, sumps, or tanks.
(d) When you no longer need a pit or sump, you must abandon it and
restore the site as we direct.
(e) BLM may require you to give us a contingency plan showing how
you will protect public health and safety, property, and the
environment.
[[Page 24425]]
Sec. 3262.12 Must I post a sign at every well?
Yes. Before you begin drilling a well, you must post a sign in a
conspicuous place and keep it there throughout operations until the
well site is reclaimed. Put the following information on the sign:
(a) The lessee or operator's name;
(b) Lease serial number;
(c) Well number; and
(d) Well location described by township, range, section, quarter-
quarter section or lot.
Sec. 3262.13 May BLM require me to follow a well spacing program?
BLM may require you to follow a well spacing program if we
determine that it is necessary for proper development. If we require
well spacing, we will consider the following factors when we set well
spacing:
(a) Hydrologic, geologic, and reservoir characteristics of the
field, minimizing well interference;
(b) Topography;
(c) Interference with multiple use of the land; and
(d) Environmental protection, including ground water.
Sec. 3262.14 May BLM require me to take samples or perform tests and
surveys?
(a) BLM may require you to take samples or to test or survey the
well to determine:
(1) The well's mechanical integrity;
(2) The identity and characteristics of formations, fluids, or
gases;
(3) Presence of geothermal resources, water, or reservoir energy;
(4) Quality and quantity of geothermal resources;
(5) Well bore angle and direction of deviation;
(6) Formation, casing, or tubing pressures;
(7) Temperatures;
(8) Rate of heat or fluid flow; and
(9) Any other necessary well information.
(b) See Sec. 3264.11 for information on reporting requirements.
Subpart 3263--Well Abandonment
Sec. 3263.10 May I abandon a well without BLM's approval?
(a) You must have a BLM-approved Sundry Notice documenting your
plugging and abandonment program before you start abandoning any well.
(b) You must also notify the local BLM office before you begin
abandonment activities, so that we may witness the work. Contact your
local BLM office before starting to abandon your well to find out what
notification we need.
Sec. 3263.11 What information must I give BLM to approve my Sundry
Notice for abandoning a well?
Send us a Sundry Notice with:
(a) All the information required in the well completion report (see
Sec. 3264.10), unless we already have that information;
(b) A detailed description of the proposed work, including:
(1) Type, depth, length, and interval of plugs;
(2) Methods you will use to verify the plugs (tagging, pressure
testing, etc.);
(3) Weight and viscosity of mud that you will use in the uncemented
portions;
(4) Perforating or removing casing; and
(5) Restoring the surface; and
(c) Any other information that we may require.
Sec. 3263.12 How will BLM review my Sundry Notice to abandon my well
and notify me of their decision?
(a) When BLM receives your Sundry Notice, we will make sure it is
complete and review it for compliance with the requirements of Sec.
3200.4. We will notify you if we need more information or require
additional procedures. If we need any further information to complete
our review, we will contact you in writing and suspend our review until
we receive the information. If we approve your Sundry Notice, we will
send you an approved copy once our review is complete. Do not start
abandonment of the well until we approve your Sundry Notice.
(b) BLM may orally approve plugging procedures for a well requiring
immediate action. If we do, you must submit the information required in
Sec. 3263.11 within 48 hours after we give oral approval.
Sec. 3263.13 What must I do to restore the site?
You must remove all equipment and materials and restore the site
according to the terms of your permit or other BLM approval.
Sec. 3263.14 May BLM require me to abandon a well?
If we determine that your well is no longer needed for geothermal
resource production, injection, or monitoring, or if we determine that
the well is not mechanically sound, BLM may order you to abandon the
well. In either case, if you disagree you may explain to us why the
well should not be abandoned. We will consider your reasons before we
issue any final order.
Sec. 3263.15 May I abandon a producible well?
(a) You may abandon a producible well only after you receive BLM's
approval. Before abandoning a producing well, send BLM the information
listed in Sec. 3263.11. We may also require you to explain why you
want to abandon the well.
(b) BLM will deny your request if we determine that the well is
needed:
(1) To protect a Federal lease from drainage; or
(2) To protect the environment or other resources of the United
States.
Subpart 3264--Reports--Drilling Operations
Sec. 3264.10 What must I submit to BLM after I complete a well?
You must submit a Geothermal Well Completion Report, Form 3260-4,
within 30 days after you complete a well. Your report must include the
following:
(a) A complete, chronological well history;
(b) A copy of all logs;
(c) Copies of all directional surveys; and
(d) Copies of all mechanical, flow, reservoir, and other test data.
Sec. 3264.11 What must I submit to BLM after I finish subsequent well
operations?
(a) Submit to BLM a subsequent well operations report within 30
days after completing operations. At a minimum, this report must
include:
(1) A complete, chronological history of the work done;
(2) A copy of all logs;
(3) Copies of all directional surveys;
(4) The results of all sampling, tests, or surveys we require you
to make (see Sec. 3262.14);
(4) Copies of all mechanical, flow, reservoir, and other test data;
and
(5) A statement of whether you achieved your goals. For example, if
the well was acidized to increase production, state whether the
production rate increased when you put the well back on line.
(b) We may waive this reporting requirement for work we determine
to be routine, such as cleanouts, surveys, or general maintenance. To
request a waiver, contact BLM. If you do not receive a waiver, you must
submit the report.
Sec. 3264.12 What must I submit to BLM after I abandon a well?
Send us a well abandonment report within 30 days after you abandon
a well. If you plan to restore the site at a later date, you may submit
a separate report within 30 days after completing
[[Page 24426]]
site restoration. The well abandonment report must contain:
(a) A complete chronology of all work done;
(b) A description of each plug, including:
(1) Type and amount of cement used;
(2) Depth that the drill pipe or tubing was run to set the plug;
(3) Depth to top of plug; and
(4) If the plug was verified, whether it was done by tagging or
pressure testing; and
(c) A description of surface restoration procedures.
Sec. 3264.13 What drilling and operational records must I maintain
for each well?
You must keep the following information for each well, and make it
available for BLM to inspect, upon request:
(a) A complete and accurate drilling log, in chronological order;
(b) All other logs;
(c) Water or steam analyses;
(d) Hydrologic or heat flow tests;
(e) Directional surveys;
(f) A complete log of all subsequent well operations, such as
cementing, perforating, acidizing, and well cleanouts; and
(g) Any other information regarding the well that could affect its
status.
Sec. 3264.14 How do I notify BLM of accidents occurring on my lease?
You must orally inform us of all accidents that affect operations
or create environmental hazards within 24 hours of the accident. When
you contact us, we may require you to submit a written report fully
describing the incident.
Subpart 3265--Inspection, Enforcement, and Noncompliance for
Drilling Operations
Sec. 3265.10 What part of my drilling operations may BLM inspect?
(a) BLM may inspect all of your Federal drilling operations
regardless of surface ownership. We will inspect your operations for
compliance with the requirements of Sec. 3200.4.
(b) BLM may inspect all of your maps, well logs, surveys, records,
books, and accounts related to your Federal drilling operations.
Sec. 3265.11 What records must I keep available for inspection?
You must keep a complete record of all aspects of your activities
related to your drilling operation available for our inspection. Store
these records in a place which makes them conveniently available to us.
Examples of records which we may inspect include:
(a) Well logs and maps;
(b) Records, books, and accounts related to your Federal drilling
operations;
(c) Directional surveys;
(d) Records pertaining to casing type and setting;
(e) Records pertaining to formations penetrated;
(f) Well test results;
(g) Records pertaining to characteristics of the geothermal
resource;
(h) Records pertaining to emergency procedure training; and
(i) Records pertaining to operational problems.
Sec. 3265.12 What will BLM do if my operations do not comply with my
permit and applicable regulations?
(a) We will issue you a written Incident of Noncompliance,
directing you to take required corrective action within a specific time
period. If the noncompliance continues or is of a serious nature, we
will take one or more of the following actions:
(1) Enter your lease, and correct any deficiencies at your expense;
(2) Collect all or part of your bond;
(3) Direct modification or shutdown of your operations; and
(4) Take other enforcement action under subpart 3213 against a
lessee who is ultimately responsible for noncompliance.
(b) Noncompliance may result in BLM terminating your lease. See
Sec. Sec. 3213.17 through 3213.19.
Subpart 3266--Confidential, Proprietary Information
Sec. 3266.10 Will BLM disclose information I submit under these
regulations?
All Federal and Indian data and information submitted to the BLM
are subject to part 2 of this title. Part 2 includes the Department of
the Interior regulations covering public disclosure of data and
information contained in Department records. Certain mineral
information not protected from disclosure under part 2 of this title
may be made available for inspection without a Freedom of Information
Act (FOIA) request. BLM will not treat surface location, surface
elevation, or well status information as confidential.
Sec. 3266.11 When I submit confidential, proprietary information, how
can I help ensure that it is not available to the public?
When you submit data and information that you believe to be exempt
from disclosure by part 2 of this title, you must clearly mark each
page that you believe contains confidential information. BLM will keep
all data and information confidential to the extent allowed by Sec.
2.13(c) of this title.
Sec. 3266.12 How long will information that I give BLM remain
confidential or proprietary?
The FOIA does not provide a finite period of time during which
information may be exempt from public disclosure. BLM reviews each
situation individually and in accordance with part 2 of this title.
Subpart 3267--Geothermal Drilling Operations Relief and Appeals
Sec. 3267.10 How do I request a variance from BLM requirements that
apply to my drilling operations?
(a) You may file a request for a variance from the requirements of
Sec. 3200.4 for your approved drilling operations. Your request must
include enough information to explain:
(1) Why you cannot comply with the requirements of Sec. 3200.4;
and
(2) Why you need the variance to control your well, conserve
natural resources, or protect public health and safety, property, or
the environment.
(b) We may approve your request orally or in writing. If BLM gives
you an oral approval, we will follow up with written confirmation.
Sec. 3267.11 How may I appeal a BLM decision regarding my drilling
operations?
You may appeal our decisions regarding your drilling operations in
accordance with Sec. 3200.5.
Subpart 3270--Utilization of Geothermal Resources--General
Sec. 3270.10 What types of geothermal operations are governed by
these utilization regulations?
(a) The regulations in subparts 3270 through 3279 of this part
cover the permitting and operating procedures for the utilization of
geothermal resources. This includes:
(1) Electrical generation facilities;
(2) Direct use facilities;
(3) Related utilization facility operations;
(4) Actual and allocated well field production and injection; and
(5) Related well field operations.
(b) The utilization regulations in subparts 3270 through 3279 do
not address conducting exploration operations, which is covered in
subpart 3250, or drilling wells intended for production or injection,
which is covered in subpart 3260.
Sec. 3270.11 What general standards apply to my utilization
operations?
Your utilization operations must:
(a) Meet all operational and environmental standards;
(b) Prevent unnecessary impacts on surface and subsurface
resources;
[[Page 24427]]
(c) Result in the maximum ultimate recovery of geothermal
resources;
(d) Result in the beneficial use of geothermal resources, with
minimum waste;
(e) Protect public health, safety, and property; and
(f) Comply with the requirements of Sec. 3200.4.
Sec. 3270.12 What other orders or instructions may BLM issue?
BLM may issue:
(a) Geothermal resource operational orders, for detailed
requirements that apply nationwide;
(b) Notices to lessees, for detailed requirements on a statewide or
regional basis;
(c) Other orders and instructions specific to a field or area;
(d) Permit conditions of approval; and
(e) Oral orders, which BLM will confirm in writing.
Subpart 3271--Utilization Operations: Getting a Permit
Sec. 3271.10 What do I need to start preparing a site and building
and testing a utilization facility on Federal land leased for
geothermal resources?
In order to use Federal land to produce geothermal power, you must
obtain a site license and construction permit from BLM before you start
preparing the site. Send BLM a plan that shows what you want to do, and
draft a proposed site license agreement that you think is fair and
reasonable. We will review your proposal and decide whether to give you
a permit and license to proceed with work on the site.
Sec. 3271.11 Who may apply for a permit to build a utilization
facility?
The lessee, the facility operator, or the unit operator may apply
to build a utilization facility.
Sec. 3271.12 What do I need to start preliminary site investigations
that may disturb the surface?
(a) You must:
(1) Fully describe your proposed operations in a Sundry Notice; and
(2) File a bond meeting the requirements of either Sec. 3251.14 or
Sec. 3273.19. See subparts 3214 and 3215 for additional details on
bonding procedures.
(b) Do not begin the site investigation or surface disturbing
activity until BLM approves your Sundry Notice and bond.
Sec. 3271.13 How do I obtain approval to build pipelines and
facilities connecting the well field to utilization facilities not
located on Federal lands leased for geothermal resources?
Before constructing pipelines and well field facilities on Federal
lands leased for geothermal resources, you as lessee, unit operator, or
facility operator must submit to BLM a utilization plan and facility
construction permit addressing any pipelines or facilities. Do not
start construction of your pipelines or facilities until BLM approves
your facility construction permit.
Sec. 3271.14 What do I need to do to start building and testing a
utilization facility if it is not located on Federal lands leased for
geothermal resources?
(a) You do not need a BLM permit to construct a facility located on
either:
(1) Private land; or
(2) Lands where the surface is privately owned and BLM has leased
the underlying Federal geothermal resources, when the facility will
utilize Federal geothermal resources.
(b) Before testing a utilization facility that is not located on
Federal lands leased for geothermal resources, send us a Sundry Notice
describing the testing schedule and the quantity of Federal geothermal
resources you expect to be delivered to the facility during the
testing. Do not start delivering Federal geothermal resources to the
facility until we approve your Sundry Notice.
Sec. 3271.15 How do I get a permit to begin commercial operations?
Before using Federal geothermal resources, you as lessee, operator,
or facility operator must send us a completed commercial use permit
(see Sec. 3274.11). This also applies when you use Federal resources
allocated through any form of agreement. Do not start any commercial
use operations until BLM approves your commercial use permit.
Subpart 3272--Utilization Plans and Facility Construction Permits
Sec. 3272.10 What must I submit to BLM in my utilization plan?
Submit to BLM an application describing:
(a) The proposed facilities as required by Sec. 3272.11; and
(b) The anticipated environmental impacts and how you propose to
mitigate those impacts, as required by Sec. 3272.12.
Sec. 3272.11 How do I describe the proposed utilization facility?
Your submission must include:
(a) A generalized description of all proposed structures and
facilities, including their size, location, and function;
(b) A generalized description of proposed facility operations,
including estimated total production and injection rates; estimated
well flow rates, pressures, and temperatures; facility net and gross
electrical generation; and, if applicable, interconnection with other
utilization facilities. If it is a direct use facility, send us the
information we need to determine the amount of resource utilized;
(c) A contour map of the entire utilization site, showing
production and injection well pads, pipel 