As noted in our Spring 2016 issue, the Bureau of Land Management ("BLM") published a proposed rule concerning Waste Prevention, Production Subject to Royalties, and Resource Conservation in the Federal Register on February 8, 2016, commonly referred to as the BLM's "Venting and Flaring Rule."1 This rule has now been finalized and is set to go into effect on January 17, 2017,2 just before the Trump administration takes office. One major goal of the rule is to increase the capture of gas associated with oil development. The rule prohibits venting of natural gas, with certain exceptions, and requires operators to reduce flaring of gas and increase capture percentages over time. Pursuant to the rule, beginning in 2018, operators will be required to capture 85% of their adjusted total volume of gas produced each month. This will increase to 90% in 2020; 95% in 2023; and finally to 98% in 2026.
Concerns regarding the viability of this rule have been expressed nationwide, and a lawsuit has been filed challenging the BLM's authority to implement a rule of this type.3 However, these concerns may be premature as there is still the potential that the rule will be overturned by congressional action, known as a joint resolution of disapproval.4 In accordance with the Congressional Review Act, a rule cannot take effect until both the House and Senate receive a copy of the rule and at least 60 days have passed from the time of receipt, or from the date the rule was published in the Federal Register, whichever is later. During these 60 days, Congress can pass a joint resolution of disapproval, effectively rendering the rule invalid. When a report is submitted 60 session or legislative days before Congress adjourns, an additional 15 days are added for the new Congress to review the rule. Therefore, once the new Congress convenes this January, it will have 75 days to pass a joint resolution of disapproval if it does not want the rule to be enacted. As long as the President does not veto this resolution,5 the rule will be overturned.
If a joint resolution of disapproval is not approved within 75 days of the new Congress convening, these expressed concerns with regard to the new rule may be valid. One major concern is that some operators may have a hard time moving forward with projects while still complying with the capture rules, as there may not be a feasible way of getting additional newly captured gas to consumers. Many have complained about this current underlying problem, which relates to the backlog in many departments with regard to rights-of-way applications.6 The concern is – that because of the current backlog in rights-of-way applications – operators may have no place for this excess gas to go. This is a major reason some operators are forced to flare. While the BLM heard comments with regard to this concern, it did not believe it was necessary to make major changes to the final rule, stating that this is not a major problem nationwide. This concern has been continually expressed in certain states which lack adequate transportation infrastructure, including New Mexico.
According to Aubrey Dunn, New Mexico Commissioner of Public Lands, "If BLM's proposed rules are implemented, the Land Office will most likely see a large-scale abandonment of oil and gas wells on State Trust Lands, with marginal wells being pushed beyond their economic thresholds."7 Dunn also stated that "[t]he irony of the proposed rule is that a local task force charged with identifying key reasons for venting and flaring of natural gas in New Mexico named a lack of access to rights-of-way for pipelines on federal lands – lands managed by BLM – as a major contributor to venting and flaring within the state."8 This leaves operators in New Mexico potentially in a Catch-22 type of situation – not able to comply with a rule imposed by the BLM because of a backlog in rights-of-way applications within the BLM. This could require operators to either abandon wells or violate the rule. According to the American Petroleum Institute Director of Upstream and Industry Operations, Erik Milito, "[t]he BLM should [instead be] focus[ing] on fixing permitting, infrastructure and pipeline delays that slow [the] ability to capture more natural gas and get it to consumers."9
However, it should be noted that the final rule does allow for the BLM "to adjust the capture target for an operator on an existing lease that demonstrates to the BLM that meeting the target would impose such costs as to cause the operator to cease production and abandon significant recoverable oil reserves under the lease."10 While it is unknown exactly how the BLM will construe this language, the rule states that it will take into account "the costs of gas capture, and the costs and revenues of all oil and gas production on the lease" in its determination.11
It has yet to be seen what will come from the BLM's new Venting and Flaring Rule, if anything. It will be important to follow these developments, as the rule could have devastating effects on oil and gas operators on federal lands within many states.