Waste Prevention, Production Subject to Royalties, and Resource Conservation (Bureau of Land Management Rule)

In April 2024, the U.S. Department of the Interior (DOI) issued a final rule entitled “Waste Prevention, Production Subject to Royalties, and Resource Conversation” (hereinafter “Waste Prevention Rule”). The new Rule, which came into force in June 2024, establishes a uniform national standard to reduce the waste of natural gas from venting, flaring and leaks during oil and gas production activities on federal and tribal lands. 

Context: Under U.S. federal law, the DOI’s Bureau of Land Management (BLM) is responsible for managing onshore oil and gas leases on federal and tribal lands. In line with this responsibility, U.S. federal law authorizes the Secretary of Interior to issue such rules as may be necessary to prevent undue waste of oil and gas resources on federal and tribal lands.    

The new Waste Prevention Rule issued in April 2024 is intended to modernize and replace the previous waste rule, which dates back to 1979. 

Description: The main provisions of the new rule are as follows:

• The new Waste Prevention Rule provides that when an operator submits an Application for Permit to Drill (APD) with respect to an oil well, the APD must be accompanied by a Waste Minimization Plan (WMP). The purpose of the WMP is to allow the BLM to understand if the operator has a plan to capture associated gas and how the operator intends to capture it. However, as an alternative to the WMP, the operator can submit a self-certification statement stating that the operator will be able to capture 100% of the gas produced from the oil well. Note that a WMP is only required for oil-well production; it is not required for gas-well production. 
• The Waste Prevention Rule creates a general obligation for oil and gas operators to use all reasonable precautions to prevent the waste of oil or gas developed on federal or tribal lands. Further, the Waste Prevention Rule grants authority to the BLM to impose waste prevention measures as part of approving an APD. The BLM will also have authority to order an operator to implement waste prevention measures after the APD has been approved (i.e., during oil or gas production).
• The Waste Prevention Rule clarifies the circumstances in which gas is deemed to be “unavoidably lost” for purposes of U.S. federal law. Specifically, gas is deemed to be “unavoidably lost” if the three following criteria are met: (1) the operator has taken reasonable steps to avoid waste; (2) the operator has fully complied with applicable laws, lease terms, regulations, operating plan provisions, and written orders from the BLM; and (3) the gas is lost because of one of 13 identified situations (e.g., pipeline capacity constraints or emergency situations). The Waste Prevention Rule further provides that gas which is “avoidably lost” is subject to royalty payments, while gas that is “unavoidably lost” is royalty-free. Under the Rule, an “emergency situation” is defined as a temporary, infrequent and unavoidable situation in which the loss of gas is necessary to avoid a danger to human health, safety or the environment. However, royalty-free emergency flaring or venting is only possible for 48 hours. After the 48-hour period elapses, the operator may be subject to a royalty obligation.
• The Waste Prevention Rule provides that oil and gas operators must flare (rather than vent) any gas that is not captured, except in certain defined circumstances. The Rule further provides that gas-well gas may not be flared or vented, except where it is “unavoidably lost”.  
• The Waste Prevention Rule creates certain measuring and record-keeping requirements for oil and gas operators. In particular, the Rule provides that operators must measure flared gas. Operators are also required to report all flared volumes (both from avoidable losses as well as unavoidable ones). The Rule also provides that starting from September 2024, operators must maintain certain records, including on any flaring or emergency that occurred at the facility. These records must be provided to the BLM upon request. 
• Finally, the Waste Prevention Rule requires operators to maintain a statewide Leak Detection and Repair (LDAR) program. The LDAR program must be submitted to the BLM for review, and the BLM can inform the operator that it deems the program to be inadequate, in which case the operator must submit a revised LDAR program. The new Rule further provides that operators have a general obligation to repair any leak as soon as possible, and in no event later than 30 days after discovery, unless good cause exists to delay the repair for a longer period.

Impact: The BLM anticipates that the new Rule will cost the oil and gas industry around USD 19.3 million per year, while the benefits to industry in recovered gas will be approximately USD 1.8 million per year. The BLM further estimates that the new Rule will result in an increase of royalty revenues from recovered and flared gas of USD 51 million. 

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