Taxpayers for Common Sense submitted comments to the Bureau of Land management concerning its proposed rule to delay and suspend certain requirements of the Waste Prevention, Production Subject to Royalties, and Resource Conservation rule.

 Dear Acting Director Michael D. Nedd,

Taxpayers for Common Sense (TCS) appreciates the opportunity to provide comments to the Bureau of Land Management (BLM) on the delay and suspension of certain requirements of the Waste Prevention, Production Subject to Royalties, and Resource Conservation proposed rule. TCS is a non-partisan budget watchdog serving as an independent voice for American taxpayers. For more than two decades, Taxpayers for Common Sense has advocated for responsible natural resource development on federal lands and waters that ensures taxpayers receive a fair return for the resources they own.

The BLM within the Department of the Interior administers mineral leasing on 245 million acres of public lands, including onshore federal oil and gas leasing. In November 2016, the BLM finalized a rule titled, Waste Prevention, Production Subject to Royalties, and Resource Conservation, to limit the practice of venting and flaring natural gas from oil and gas wells on federal lands.¹ The new rule replaced the existing Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases, Royalty or Compensation for Oil and Gas Lost (NTL-4A) of 1979 that has led to the loss of trillions of cubic feet of federal natural gas.²

The finalized 2016 methane waste rule was the result of years of work, research of best practices, and public input. The BLM began the methane waste rulemaking in 2011. It conducted a series of public meetings throughout the country seeking input from Industry and stakeholders. Four “forums” were held in 2014 in Colorado, New Mexico, North Dakota, and Washington, DC. In addition, four ‘public hearings’ in New Mexico, Oklahoma, Colorado, and North Dakota took place after release of the proposed rule in 2016 to ensure industry and stakeholders had ample opportunity to voice concerns with the rule.

In order to lessen the burden of compliance under the methane waste rule finalized in November of 2016, industry was allotted a years’ time to comply with the new regulations. The rule took effect in January of 2017, but the compliance dates for key provisions of the rule were set in January of 2018. This allows industry time to make the necessary capital investments and infrastructure improvements for compliance with the new rule. The BLM’s October 2017 proposed rule would delay compliance with the 2016 methane waste rule further, pushing back compliance until January 2019. The decision to push back implementation of the methane rule according to the BLM, is to prevent “burden to operators.” TCS argues that doing so would place an undue burden on taxpayers. To delay key provisions of the Waste Prevention, Production Subject to Royalties, and Resource Conservation rule would promote the continued waste of taxpayer resources, and loss of royalty revenues, by returning to NTL-4A practices.

NTL-4A was issued by the U.S. Geological Service on December 27, 1979. There have been significant advancements in drilling technologies and techniques since the rule’s issuance almost 38 years ago. The

problems with the NTL-4A regulations that have allowed for venting, flaring, and royalty-free uses of oil and natural gas are well-documented. In 2010, the Department of the Interior Inspector General recommended that the BLM clarify its requirements for royalty-free use of gas.³ The same year, the Government Accountability Office (GAO) found that around 40 percent of natural gas being vented and flared from onshore Federal leases could have been captured economically with the use of control technologies already available, and that Interior’s oversight of the oil and gas program had significant limitations—specifically, that its regulations did not address significant sources of lost gas.⁴

In 2011, the GAO added Management of Federal Oil and Gas Resources to its list of government programs considered to be at high risk—defined as having “greater vulnerabilities to fraud, waste, abuse, and mismanagement.” The GAO found that, “Interior did not have reasonable assurance that it was collecting its share of revenue from oil and gas produced on federal lands.”⁵ The guidance provided in the 1979 rule does not reflect current practices and technologies in the natural gas industry, which now allow for the economical capture of natural gas, while reducing wasteful flaring.

NTL-4A guidance for determining what qualifies as royalty free gas is fundamentally flawed. The rule depends entirely on the subjective judgments made by a BLM Supervisor or Authorized Officer about what is “prudent and proper” or “reasonable” to determine whether gas has been wasted and should incur a royalty. According to a 2016 GAO report, there has been significant ambiguity in determining what constitutes royalty-free, on-site use, and consequently, “substantial variation in how the BLM has interpreted and applied the standard” for approval of flaring.⁶ Billions of dollars’ worth of natural gas has been lost to venting and flaring over more than three decades, due to the subjective royalty-free status practices under NTL-4A.

Progress Made for Taxpayers by the 2016 Methane Waste Rule

The 2016 methane waste rule helps to address the key issue of royalty losses from flared gas, and if allowed to proceed, without delay, will capture much of the gas currently being lost, avoiding unnecessary waste and adding to federal revenues. A number of its provisions, discussed below, would jointly help achieve this goal.

The methane waste rule clarifies when to charge royalties for lost gas by replacing the vague guidance of the NTL-4A that resulted in inconsistent application of BLM standards. Specifically, the rule defines certain situations when venting or flaring is considered “unavoidably lost” and therefore does not incur a royalty. In all other cases, the gas is considered “avoidably lost” and should be charged a royalty. The rule also prohibits venting, except in certain situations, like emergencies, during maintenance, or when flaring is infeasible. And it requires the replacement of “high bleed” pneumatic controllers with “low bleed” controllers within one year.

The rule establishes target percentages for the amount of gas producers must capture and sell each month per well. A certain percentage of all gas produced every month from development oil wells must be captured. To ease compliance, the capture target percentage is ramped up over the first few years the rule takes effect, and more significantly, is averaged over a lease, unit, communalized area, county, or state. This percentage is only applied to gas that exceeded an allowable flaring volume per well per month that can be correspondingly averaged out. Any amount flared in excess of the targets would be considered “avoidably lost” gas as re-defined by the rule and thereby incur a royalty.

Additionally, the 2016 methane waste rule Allows royalty rates to be increased in the future for new competitive onshore oil and gas leases, consistent with the Mineral Leasing Act. Unlike other resource development plans, outdated rules required the BLM to conduct a formal rulemaking in order to change the

royalty rate charged for new oil and gas leases. This change allows the BLM to consider other royalty rates to better reflect market conditions. The rule also requires the use of an instrument-based leak detection and repair (LDAR) program to find and repair leaks at least twice a year. One of the largest sources of lost, non-combusted natural gas has been leaks from equipment (rather than intentional venting). The use of LDAR systems will reduce the amount of wasted gas from sources that have previously gone undetected and unaddressed.

The rule must be allowed to move forward without delay, as the issue of lost gas has only been increasing in recent years. Between 2009 and 2013, the amount of gas lost during production on federal lands doubled.⁷ According to BLM calculations, lost gas in 2009-15 alone amounted to a total of 462 billion cubic feet. The amount of gas lost in that time period was enough to 6.2 million homes for a year.⁸ By delaying the implementation of the 2016 methane waste rule, the BLM would be returning to the outdated guidance of the NTL-4A, perpetuating the steady increase of lost gas during production and depriving taxpayers of much needed royalty revenues.

For additional information please find attached our report titled, “Gone with the Wind: How Taxpayers are Losing from Wasted Gas,” which further addresses the loss of natural gas on federal lands.