BLM Finalizes Pared-Back Waste Reduction Rule for Public Land Leases

On April 10, 2024, the Department of the Interior's Bureau of Land Management ("BLM") published final rules designed to reduce the waste of natural gas from venting, flaring, and leaks during oil and gas production activities on Federal and Indian leases. The final rule also ensures that, when Federal or Indian gas is wasted, the public and Indian mineral owners are compensated for that wasted gas through royalty payments. This final rule replaces BLM's previous four-decade old requirements governing venting and flaring.

The final rule addresses an issue with a complex statutory and judicial background. BLM administers an oil and gas leasing program on public lands under a variety of statutes, including the Mineral Leasing Act, the Federal Land Policy and Management Act, and the Indian Mineral Development Act. These statutes take different forms, but generally require BLM to prevent waste and collect royalty payments from oil and gas development on Federal lands and requires BLM to act as trustee for the benefit of Native American mineral rights. Under this authority, BLM has taken several actions in the past decade to reduce wasteful flaring and leakage from oil and gas operations on public lands. Since 1980, BLM has controlled waste from public land leases under “Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases: Royalty or Compensation for Oil and Gas Lost” (“NTL-4A”). On November 18, 2016, under the Obama Administration, BLM issued the "Waste Prevention Rule," which replaced NTL-4A. However, administration of that rule was suspended under the Trump Administration and ultimately struck down in Wyoming v. DOI, 493 F. Supp. 3d 1046 (D. Wyo. 2020) after a finding that the rule was inappropriately supported by “climate change benefits" and exceeded BLM's statutory authority. The Trump Administration issued a significant revision to the rule on September 28, 2018, which removed many of the Waste Prevention Rule's requirements and largely reverted back to the standard set by NTL-4A. This, in turn, was vacated in California v. Bernhardt, 472 F. Supp. 3d 573 (N.D. Cal. 2020), after a Federal court in California held that the Trump Administration's 2018 revisions were insufficiently supported by the administrative record, among other things. 

The final rule was spurred by the Inflation Reduction Act ("IRA"), which was signed on August 16, 2022. Section 50263 of the IRA is entitled, “Royalties on All Extracted Methane,” and provides that royalties are owed on all gas produced from Federal land, including gas that is consumed or lost by venting, flaring, or negligent releases through any equipment during upstream operations. On November 30, 2022, in response to the IRA's mandate, BLM issued a notice of proposed rulemaking that again attempted to update BLM's waste rules. This proposed rule took a narrower approach than previous regulations - while the proposed rule was expected to have significant climate benefits BLM argued that the rule reflected reasonable measures to avoid waste that could be expected of a prudent operator, irrespective of any impacts with respect to climate change.

The final rule will have a significantly smaller climate impact than projected in the 2022 proposal. Using standard assumptions around the social cost of greenhouse gases, BLM estimates that the final rule will prevent $17.9 million worth of climate damage from methane releases each year. These reductions are significantly lower than those projected in the initial proposed rule, which anticipated producing social benefits of $427 million per year from reduced greenhouse gas emissions. 

This reduced environmental benefit is driven by BLM's removal of certain requirements in the proposed rule that may have had relatively small impacts on royalties. In particular, BLM has dropped proposed requirements that would have placed tighter controls on natural-gas-activated pneumatic equipment and would have required operators to install vapor recovery equipment on certain storage tanks. In its final rule, BLM notes that its statutory focus "is on waste prevention, including loss of royalties," and while these proposals would have a significant environmental impact they "would contribute little to assuring proper royalty collection." However, BLM notes that EPA has recently released several environmentally focused regulations that would similarly limit methane leaks from wells on public lands.
 

The final rule will go into effect on June 10, 2024.

[Last updated Apr. 10, 2024]