united states department of the interior bureau of indian

United States Department of the Interior Bureau of Indian Affairs

Tribal Consultation Packet 25 C.F.R. Part 226—Leasing of Osage Reservation Lands for Oil and Gas Mining

September 2016

Tribal Consultation Packet

Osage Oil & Gas Regulations—25 C.F.R. Part 226

Contents

1. Overview

2. Tentative Timeline

3. List of Federal Government Participants

4. Suggested Discussion Topics—Tribal Consultation Meeting 1

5. Act of June 28, 1906, 34 Stat. 539

6. Current Regulations—25 C.F.R. Part 226 (April 1, 2015)

7. Osage Final Rule—80 Fed. Reg. 26994 (May 11, 2015) (remanded)


Overview

The subsurface mineral estate in Osage County, Oklahoma (“Osage Mineral Estate”) is

held in trust by the United States for the benefit of the Osage. Act of June 28, 1906, Pub. L. No. 59-321, § 3, 34 Stat. 539, 543-44 (“1906 Act”). Pursuant to the 1906 Act, leases of the Osage Mineral Estate are made by the Osage Mineral Council, with the approval of the Secretary of the Interior and subject to such rules and regulations as he/she may prescribe. Id. The regulations governing oil and gas mining operations within the Osage Mineral Estate are found in 25 C.F.R. Part 226, Leasing of Osage Reservation Lands for Oil and Gas Mining.

The Bureau of Indian Affairs (“BIA”) has determined that a review of the regulations in

25 C.F.R. Part 226 is appropriate to consider whether, and to what extent, certain provisions in the regulations should be revised in order to strengthen BIA’s management and administration of the Osage Mineral Estate. As part of that process, we are conducting Tribal consultation to obtain your input regarding the need for, and nature of, any such revisions or updates. To assist you in preparing for these consultation sessions we’ve enclosed several documents for your review. The first is a list of suggested topics we would like to discuss at the first consultation session. These topics are related to provisions of the regulations that may require revision or updating. Please note that while the list is intended to guide the discussion, it does not foreclose the discussion of any other topics or provisions of the regulations that the Tribal representatives would like to address. The second is a copy of the regulations that are currently in force in Osage County, 25 C.F.R. Part 226 (2015). Finally, we’ve included a copy of the Osage Final Rule, 80 Fed. Reg. 26994 (May 11, 2015), that was remanded to the agency for further consideration. The May 2015 Osage Final Rule was the product of negotiated rulemaking by the BIA, Osage Nation and Osage Minerals Council to revise 25 C.F.R. Part 226. However, due to litigation following its publication, the Osage Final Rule never went into effect and was ultimately remanded to the agency in November 2015. Although the May 2015 Osage Final Rule was never made effective, we believe that it may be informative to the present discussion.

To the extent that revision and updating of the the current regulations in 25 C.F.R. Part

226 is warranted, our goal would be to draft such regulations and publish a proposed rule in the Federal Register by Spring 2017. Tribal consultation is an important part of meeting this objective and we look forwarding to receiving your input regarding the regulations. If you have any questions regarding any of the materials in the Tribal Consultation Packet, please contact Ms. Elizabeth Appel, Office of Regulatory Affairs & Collaborative Action, at (202) 208-7163.


Tentative Timeline

September 2016

October 2016

December 2016-January 2017

Spring 2017

Summer 2017

** All dates are tentative and subject to change.

BIA Identification of Need for Review

Initiation of Tribal Consultation WE ARE

HERE

First Tribal Consultation Meeting

BIA Preparation of Discussion Draft of Regulations

Second Tribal Consultation Meeting

BIA Preparation of Proposed Rule

Publication of Proposed Rule in Federal Register

BIA Review of Public Comments Received on Proposed Rule

BIA Preparation of Final Rule

Publication of Final Rule in Federal Register

BIA Review of Feedback on Draft Regulations

Continue here if

regulations will be revised


Federal Government Participants in the Tribal Consultation Process Bureau of Indian Affairs Michael Black, Director Eddie Streater, Regional Director, Eastern Oklahoma Region Robin Phillips, Superintendent, Osage Agency Richard Winlock, Deputy Superintendent, Osage Agency Elizabeth Appel, Director, Office of Regulatory Affairs and Collaborative Action Office of Natural Resources Revenue Heidi Badaracco, Program Manager, State and Indian Coordination Yvette Smith, Indian & Tribal Liaison, State and Indian Coordination Michel Mouton, Minerals Revenue Specialist Office of the Solicitor Kenneth Dalton, Director, Indian Trust Litigation Office Kristen Kokinos, Attorney-Advisor, Indian Trust Litigation Office Stephen Simpson, Senior Attorney, Division of Indian Affairs Charles Babst, Senior Attorney, Tulsa Field Solicitor’s Office


Tribal Consultation Meeting 1 Suggested Discussion Topics

1. Need for Revision and Updating of Regulations

2. Overview of the Process and Timeline

3. Computation of Royalties a. NYMEX Calendar Month Average Price (oil) b. Oklahoma Zone 1 Index Pricing (gas)

4. Bonding

a. Per well vs. per lease bonding b. Bond amount c. Bonding requirement for assignments with multiple working interests

5. Gas Purchaser Contracts

6. Site Security Measures

a. Valves b. Meters

7. Seismic Exploration Permits

8. Rental for SWD wells located off the leased premises

9. Adoption of BLM Onshore Orders

10. Administration of the Osage Royalty Management Program by ONRR

a. Reporting b. Enforcement c. Appeals d. Civil Penalties

11. Penalties

12. Any Other Relevant Topics or Issues

Act of June 28, 1906, 34 Stat. 539

FIFTY-NINTH CONGRESS. SESS. I. Cns. 3569-3572. 1906.

CHAP. 3569.-An Act To amend section twenty-eight hundred and forty-fourof the Revised Statutes of the United States, and to provide for an authentication ofinvoices of merchandise shipped to the United States from the Philippine Islands.

539

June 28, 1906.1H. -. 19756.]

[Public, No. 318,]

Be it enacted by the Senate and lbouse qf Representative8 of the UnitedStates of Awericat i (onfIrss a8s mt , d, That section numbered Invoices..fR.-S. sec. 2944,1,. :51,

twenty-eight hundred and forty-four of the Revised Statutes of the a...ee.United Sttes is hereby amended by adding thereto the following:

Provided, That the authentication may be made by the collector or a hniies ndeputy collector of customs in the case of merchandise shipped to theUnited States from the Philippine Islands."

Approved, June 28, 1906.

CHAP. 3570.-An Act To authorize the Monongahela Connecting Railroad Com-pany to construct a bridge across the Monongahela River in the State of Pennsylvania.

June 28, 1906.[H. R. 19850.

-FFTIblie. N. R19.I

Be it enacted by t/e Senate and Ilouse o4 Representative8 of the UnitedStates of Amcrlca In C(gres assembled, That the Monongahela Con- MonongahelaMonongahela

necting Railroad Company, a corporation organized under the laws of n tingRailroa,the State of Pennsylvania, its successors and assigns, be, and they are pany may bri,

hereby, authorized to construct, maintain, and operate a bridge and Pittsbnrg, Pa.approaches thereto across the Monongahela River at Pittsbrg, froma point on the north shore between Hazlewood avenue and the Glen-wood highway bridge to a point on the south shore in the township ofBaldwin or the township of Lower Saint Clair, in Allegheny County,in the State of Pennsylvania, in accordance with the l)rovisions of the A ate, p. 84.Act entitled "Al Act to regulate the construction of bridges overnavigable waters," approved March twenty third, nineteen hundredand six.

SEc. 2. That the right to alter, amend, or repeal this Act is hereby Amendment.

expressly reserved.Approved, June 28, 1906.

CHAP. 3571.-An Act To authorize the board of supervisors of Sunflower County,Mississippi, to construct a bridge across Sunflower River.

River.Con-

dCom-dge, at

June 28, 1906.[H. R. 19854.1

[Pulhlic. Kr,590I1Be It enacted by the Senate and louse of Representaties oft/c United ..

States of Anierica in Congress assembled, That the board of super- Sunflower River,Sunflower County,visors of Sunflower County, Mississippi, be, and they are hereby, an -3iss., may bridge, at

thorized to construct, maintain, and operate a bridge and approaches Lehrton.

thereto across the Sunflower River at Lehrton, in Sunflower County,in the State of Mississippi, in accordance with the provisions of the Ae, p. 84.

Act entitled 'An Act to regulate the construction of bridges overnavigable waters," approved -March twenty-third, nineteen hundredand six.

SEc. 2. That the right to alter, amend, or repeal this Act is hereby Amendment.expressly reserved.


CHAP. 3572.-An Act For the division of the lands and funds of the Osage Indiansin Oklahoma Territory, and for other purposes.

June 28, 1906.[H. R. 15333.]

[Public. No. 321.1

Be it enacted by tle Senate and House of Representatives of the United IStates of America in Congress assembled, That the roll of the Osage Osage Indians,Okla.tribe of Indians, as shown by the records of the United States in the Division of tribaloffice of the United States Indian agent at the Osage Agency. Okla- land, etc.

Tribal roll.

.... 1

540 FIFTY-NINTH CONGRESS. SEss. 1. CH. 35i 2. i906.

homa Territory, as it existed on the first day of January, nineteenhundred and six, and all children born between January first, nine-teen hundred and six, and July first, nineteen hundred and seven, topersons whose names are on said roll on January first, nineteen hun-dred and six, and all children whose names are not now on said roll,but who were born to members of the tribe whose names were on thesaid roll on January first, nineteen hundred and six, including thechildren of members of the tribe who have, or have had, white hus-bands, is hereby declared to be the roll of said tribe and to constitute the

Proviso.Fraudulent enroll- legal membership thereof: Prodded, That the principal chief of thent. Osages shall, within three months from and after the approval of this

Act, file with the Secretary of the Interior a list of the names which thetribe claims were placed upon the roll by fraud, but no name shall beincluded in said list of any person or his descendants that was placedon said roll prior to the ihirty-first day of December, eighteen hun-dred and eighty-one, the date of the adoption of the Osage constitu-tion, and the Secretary of the Interior, as early as practicable, shallcarefully investigate such cases and shall determine which of said per-sons, if any, are entitled to enrollment; but the tribe must affirmatively

Restriction, show what names have been placed upon said roll by fraud; but wherethe rights of persons to enrollment to the Osage roll have been inves-tigated by the Interior Department and it has been determined by theSecretary of the Interior that such persons were entitled to enroll-ment, their naues shall not be stricken from the roll for fraud exceptupon newly discovered evidence; and the Secretary of the Interiorshall have authority to place on the Osage roll the names of all personsfound by him, after investigation, to be so entitled, whose applica-

Revision of roll. tions were pending on the date of the approval of this Act: and thesaid Secretary of the Interior is hereby authorized to strike from thesaid roll the names of persons or their descendants which he finds wereplaced thereon by or through fraud, and the said roll as above pro-vided, after the revision and approval of the Secretary of the Interior,as herein provided, shall constitute the approved roll of said tribe;

Decision of Seere- and the action of the Secretary of the Interior in the revision of theLary final. roll as herein provided shall be final, and the provisions of the Act of

Congress of August fifteenth, eighteen hundred and ninety-four,Twenty-eighth Statutes at, Large, page three hundred and five, grant-

ing persons of Indian blood who have been denied allotments the rightto appeal to the courts, are hereby repealed as far as the same relateto the (sage Indians; and the tribal lands and tribal funds of saidtribe shall be equally divided among the members of said tribe ashereinafter provided.

Division of lai.&. SEC. 2. That all lands belonging to the Osage tribe of Indians inOklahoma Territory, except as herein provided, shall be dividedamong the members of said tribe, giving to each his or her fair sharethereof in acres, as follows:

First selection. First. Each member of said tribe, as shown by the roll of member-ship made up as herein provided, shall be permtted to select one hun-

Filing notic. dred and sixty acres of land as a first selection; and the adult membersshall select their first selections and file notice of the same with the

United States Indian agent for the Osages within three months afterRatificati. the approval of this Act: Jtrodd d, That all selections of lands here-

tofore made by any member of said tribe, against which no contest ispending, be. and the same are hereby, ratified and confirmed as one of

Failure to select, the selections of such imbcr. And'if any adult menber fails, refuses,or is unable to inake such selection within said time, then it shall bethe duty of the United States Indian agent for the Osages to makesuch selection for such member or members, subject to the approval of

First selections for the Secretary of the Interior. That all said first selections for minorsi ...... shall be made by the United States Indian agent for the Osages, sub-

FIFTY-NINTH CONGRESS. SESS. 1. CH. 3572. 1906.

ject to the approval of the Secretary of the Interior: Proo';ded, That Parents may select.said first selections for minors having parents ma be made Lv saidparents, and the word "minor" or "minors" used in this Act slhall beheld to mean those who are under twenty-one years of age: And pro- Time of selection.

i'nhdf,,rtheir, That all children horn to meibers of said tribe betweenJanuary first, nineteen hundred and six, and the first day of January,nineteen hundred and seven, shall have their selections made for themwithin six months after approval of this Act, or within six monthsafter their respective births. That all children born to members ofsaid tribe on and after the first day of January, nineteen hundred andseven, and before the first day of "July, nineteen hundred and seven,shall have their selections Made for them on or before the last day ofJuly, nineteen hundred and seven, the proof of birth of such childrento be made to the United States Indian agent for the Osages.

Second. That in making his or her first selection of land, as herein Prior rights pro-

provided for, a member shall not be permitted to select land already teeted.selected by. or in possession of, another member of said tribe as a irstselection, unless such other member is in possession of nore land thanhe and his family are entitled to for first selections under this Act; andin such cases the member in possession and having houses, orchards,barns, or plowed land thereon shall have the prior right to make thefirst selection: 1 nh!d, That where lnembers of the tribe are in })os- Doisoo.• t Disposal of imaprove-

sess ion of more land than they are entitled to for first selections merts. if

herein, said members shall have sixty days after the approval of thisAct to dispose of the improvements on said lands to other members ofthe tribe.

Third. After each ineniber has selected his or her first selection as Second selection.herein provided, he or she shall be permitted to make a second selec-tion of one hundred and sixty acres of land in the manner herein pro-vided for the first selection.

Fourth. After each inembher has selected his or her second selection Third selection.

of one hundred and sixty acres of land as herein provided, he or sheshall be permitted to make a third selection of one hundred and sixtyacres of land in the manner herein provided for the first and secondselections: lo'tded, That, all selections herein provided for shall con- Pioform to the existing public surveys in tracts of not less than forty Sur,,e>acres, or a legal subdivision of a less amount, designated a " lot." Hme.ea ds in-Each member of said tribe shall le permitted to designate which ofhis three selections shall be a homestead, and his certificate of allot-ment and deed shall designate the same as a homestead, and the same eshall be inalienable and nontaxable until otherwise provided by Act ofCongress. The other two selections of each membei, together with his Surpius lands. d

share of the remaining lands allotted to the member, shall be knownas surphls l'tnd, and shall be inalienable for twenty-five years, exceptas hereinafter provided.

Fifth. After each member has selected his or her first, second, and Disposal of remain

third selections of one hundred and sixty acres of land, as herein pro- inglan.itvided, the remaining lands of said tribe li Oklahoma Territory, exceptas herein provided, shall be divided as equally as practicable amongsaid members by a commission to be appointed to supervise the selec-tion and division of said Osage lands.

Sixth. The selection and division of lands herein provided for shall comissio.be made under the supervision of, or by, a commission consisting ofone member of the Osage tribe, to be selected by the Osage council,and two persons to be selected by the Commissioner of Indian Affairs Isubject to the approval of the Secretary of the Interior; and said com- Dnties.mission shall settle all controversies between members of the triberelative to said selections of land: and the schedules of said selections eand division of lands herein provided for shall be subject to the approvalof the Secretary of the Interior. The surveys, salaries of said con- Expenses.

541

542 FIFTY-NINTH CONGRESS. SESS. I. Cn. 3572. 1906.

mission, and all other proper expenses necessary in making the selec-tions and division of land as herein provided shall be paid by theSecretary of the Interior, out of any Osage funds derived from thesale of town lots, -royalties from oil, gas, or other minerals, or rentsfrom grazing land.

Authority to sell se- Seventh. That the Secretary of the Interior, in his discretion, at theleed lands. request and upon the petition of any adult member of the tribe, may

issue to such member a certificate of competency, authorizing him tosell and convey any of the lands deeded him by reason of this Act,

Homesteads ex- except his homestead, which shall remain inalienable and nontaxablecepted. for a period of twenty-five years, or during the life of the homestead

allottee, if upon investigation, consideration, and examination of therequest he shall find any such member fully competent and capable oftransacting his or her own business and caring for his or her own indi-

Provisos. vidual affairs: Povided, That upon the issuance of such certificate of ATaxation, etc. competency the lands of such member (except his or her homestead) t

shall become subject to taxation, and such member, except as hereinprovided, shall have the right to manage, control, and dispose of his for her lands the same as any citizen of the United States: J rmode, nThat the surplus lands shall be nontaxable for the period of three years hfrom the approval of this Act, except where certificates of compe- titency are issued or in case of the death of the allottee, unless otherwise c

Saleof oil,etc.,lands drovjided by Congress: Adptd d fiutltcr, That nothing herein shallprohibited. prvie by Congress:-,- . -

authorize the sale of the oil, gas, coal, or other minerals covered by rt

said lands, said minerals being reserved to the use of the tribe for a 0period of twenty -five years, and the royalty to be paid to said tribe as

ndividual owner- hereinafter provided: :In 1mnocidedf't u-, That the oil, gas, coal, andhip after Z years, other minerals upon said allotted lands shall become the property of

the individual owner of said land at the expiration of said twenty-fiveyears, unless otherwise provided for by Act of Congress.

SistersofSaintFran- Eighth. There shall be reserved from selection and division, as 0ois.

Land donated to. herein provided, one hundred and sixty acres on which tie Saint LouisSchool, near Pawhuska, is located, and the one hundred and sixty acreson which the Saint John's School, on Hominy Creek, Osage IndianReservation, is located, said tracts to conform to the public surveys;and said tracts of land are hereby set aside and donated to the order ofthe Sisters of Saint Francis; and said tracts shall be con-eved to saidorder, the Sisters of Saint Francis, as early as practicable, by deed. e

LandHreserednar There shall also be reserved from selection and division forty- acres ofGay Horse. land near Gray Horse, to be designated by the Secretary of the Inte- a

rior, on which are located the dwelling houses of John N. Florer,Walter 0. Florer, and John L. Bird; and said John N. Florer shall be aallowed to purchase said forty acres at the appraised value placed ethereon by the Osage Allotting Commission, the proceeds of the saleto be placed to the credit of the Indians and to be distributed like other ofunds herein provided for.

Lad reserved or Ninth. There shall be reserved from selection and division, as hereindwelling purposes.

provided, the northeast quarter df section three, township twenty-five, arange nine east, of the Indian meridian, and one hundred and sixty Racres to conform to the public survey at the town of Gray Horse,including the Government doctor's building, other valuable buildings,and the cemetery, and the one hundred and sixty acres to conform tothe public survey, adjoining or near the town site of Hominy; said tllands or tracts are hereby set aside for the use and benefit of the OsageIndians. exclusively, for dwelling purposes, for a period of twenty-fiveyears from and after the first day of January, nineteen hundred and

Palviof seven: Provide, That said land may, in the discretion of the OsageSale of1 reserved

lands. tribe, be sold under such rules and regulations as the Secretary of theInterior may prescribe; and the proceeds of the same under such saleshall be apportioned and placed to the credit of the individual members kof the tribe according to the roll herein provided for. o

FIFTY-NINTH CONGRESS. SESS. I. CH. 3572. 1906. 543

Tenth. The Osage Boarding School reserve of eighty-seven and Osage Boarding

five-tenth acres, and the reservoir reserve of seventeen and three- school reserve, etc.

tenths acres, and the agent's residence reserve, together with all thebuildings located on said reservations in the town site of Pawhuska,as shown by the official plat of the same, are hereby reserved fromselection and division as herein provided: and the same may be sold Saleof.in the discretion of the Osage tribe, under such rules and regulationsas the Secretary of the Interior may provide: and the proceeds of Proceeds.

such sale shall be apportioned and placed to the credit of the individualmembers of said tribe according to the roll herein provided for.

Eleventh. That the United States Indian agent's office building, the Sale of Government

Osage council building, and all other buildings which are for the buildings, etc.

occupancy and use of Government employees, in the town of Paw-huska, together with the lots on which the said buildings are situated,shall be sold to the highest bidder as early as practicable, under suchrules and regulations as the Secretary of the Interior may prescribe;and with the proceeds he shall erect other suitable buildings for the Erection of new

uses mentioned, on such sites as he may select, the remaining proceeds, buildings.

if any, to be placed to the credit of the individual members of theOsage tribe of Indians: Provided, That the house known as the chief's . reservedhouse, together with the lot or lots on which said house is located, and from sale.

the house known as the United States interpreter's house, in Pawhnska,Oklahoma Territory, together with the lot or lots on which said housesare located, shall be reserved from sale to the highest bidder and shallbe sold to the principal chief of the Osages and the United Statesinterpreter for the Osages, respectively, at the appraised value of thesame, said apprais.ement to be made by the Osage town-site commis-sion, subject to the approval of the Secretary of the Interior.

Twelfth. That the cemetery reserve of twenty acres in the town site Cemetera reserve

of Pawhuska, as shown by the official plat thereof, is hereby set aside donated toPawhuska.

and donated to the town of Pawhuska for the purposes of sepulture,on condition that if said cemetery reserve of twenty acres, or any part Reversion.

thereof, is used for purposes other than that of sepulture, the whole ofsaid cemetery reserve of twenty acres shall revert to the use and benefitof the individual members of the Oqagd tribe, according to the rollherein provided, or to their heirs; and said tract shall be conveyed tothe said town of Pawbuska by deed, and said deed shall recite and setout in full the conditions under which the above donation and convey-ance are made.

That the provisions of an Act entitled "An Act making appropria- ogn town-sitetions for the current and contingent expenses of the Indian Depart- Present law not af-

ment and for fulfilling treaty stipulations with various Indian tribes feced.for the fiscal year ending June thirtieth, nineteen hundred and six,and for other purposes," approved March third, nineteen hundredand five, relating to the Osage Reservation, pages one thousand and Vol.SSpp. 1061,1062.

sixty-one and one thousand and sixty-two, volume thirty-three, UnitedStates Statutes at Large, be, and the same are hereby, continued infull force and effect.

Oil and mineralSEC. 3. That the oil, gas, coal, or other minerals covered by the lands.

lands for the selection and division of which provision is herein -made Leases.are hereby reserved to the Osage tribe for a period of twenty-fiveyears from and after the eighth day of April, nineteen hundred andsix; and leases for all oil, gas, and other minerals, covered by selectionsand division of land herein provided for, may be made by the Osagetribe of Indians through its tribal council, and with the approval ofthe Secretary of the Interior, and under such rules and regulations ashe may prescribe: Pro 'ided, That the royalties to be paid to the Osage rovisos.tribe under any mineral lease so made' shall be detelrmined by the oralties.

President of the United States: And provided furthet, That no mining Prospecting re-

of or prospecting for any of said mineral or minerals shall be per- sicted.

initted on the homestead selections herein provided for without the

544 FIFTY-NINTH CONGRESS. SESS. I. CH. 3572. 1906.

written consent of the Secretary of the Interior: Provided, /iowe'er ,Existing contract , That nothing herein contained sfiall be construed as affecting any valid

etc., not affected. existing lease or contract.Trust fund. SEC. 4. That all funds, belonging to the Osage tribe, and all moneys

due, and all moneys that may become due, or may hereafter be foundto be due the said Osage tribe of Indians. shall be held in trust by theUnited States for the period of twenty-five years from and after thefirst day of January, nineteen hundred and seven, except as hereinprovided:

Segregation of First. That all the funds of the Osage tribe of Indians, and all thefunds. moneys now due or that may hereafter be found to be due to the said

Osage tribe of Indians, and all moneys that may be received from thesale of their lands in Kansas under existing laws, and all moneys foundto be due to said Osage tribe of Indians on claims against the UnitedStates, after all proper expenses are paid, shall be segregated as soon

Pro rata division, after January first, nineteen hundred and seven, as is practicable andplaced to the credit of the individual members of the said Osage tribeon a basis of a pro rata division among the members of said tribe, asshown by the authorized roll of membership as herein provided for, orto their heirs as hereinafter provided, said credit to draw interest as

Interest payments. now authorized by law; -and the interest that may accrue thereon shallbe paid quarterly to the members entitled thereto, except in the caseof minors, in which case the interest shall be paid quarterly to the

Prois s. parents until said minor arrives at the age of twenty-one years:mone o mineres Provided, That if the Commissioner of Indian Affairs beconies satis-

fied that the said interest of any minor is being mistied or squanderedPayments he may withhold the payment of such interest: And pow'dcdftlur,

dians. to gu'r- That said interest of minors whose parents are deceased shall be paidto their legal guardians, as above provided.

Deposit of funds tocredit of Indians. Second. That the royalty received from oil, gas, coal, and other

mineral leases upon the lands for which selection and division are hereinprovided, and all moneys received from the sale of town lots, togetherwith the buildings thereon, and all moneys received from the sale ofthe three reservations of one hundred and sixty acres each heretoforereserved for dwelling purpoges, and all moneys received from grazinglands, shall be placed in the Treasury of the Lnited States to the creditof the members of the Osage tribe of Indians as other moneys of said

Distribution of. tribe are to be deposited under the provisions of this Act, and the sameshall be distributed to the individual members of said Osage tribeaccording to the roll provided for herein, in the manner and at the sametime that payments are made of interest on other moneys held in trustfor the Osages by the United States, except as herein provided.

Royalies reserved Third. There shall be set aside froni the royalties received froni oilfor sctool purposes. and gas not to exceed fifty thousand dollars per annum for ten years

from the first day of January, nineteen hundred and seven, for the stip-port of the Osage Boarding School and for other schools on the OsageIndian Reservation conducted or to be established and conducted forthe education of Osage children.

For agency pur- Fourth. There shall be set aside and reserved from the royaltiesposes. received from oil, gas, coal, or other mineral leases, and moneys received

from the sale of town lots, and rents from grazing lands not to exceedthirty thousand dollars per annum for agency purposes and an emer-gency fund for the Osage tribe, which shall be paid out from time totime, upon the requisition of the Osagetribal council, with the approvalof the Secretary of the Interior.

Terminationof trust SEC. 5. That at the expiration of the period of twenty-five yearsfund. from and after the first day of January, nineteen hundred and seven,

the lands, mineral interests, and moneys, herein provided for and heldin trust by th6 United States shall be the absolute property of theindividual members of the Osage tribe, according to the roll hereinprovided for, or their heirs, as herein provided, and deeds to said lands

FIFTY-NINTH CONGRESS. SEss. I. CH. 3572. 1906. 1 545

shall be issued to said members, or to their heirs, as herein provided,and said moneys shall be distributed to said members, or to their heirs.as herein provided, and said members shall have full control of saidlands, moneys, and mineral interests, except a.s hereinbefore provided.

SEc. 6. That the lands, moneys, and mineral interests, herein pro- Right of inherit-vided for. of any deceased lnember of the Osage tribe shall descend to ance.

his or her le-al heirs, according to the laws of the Territory of Okla-homa, or of the State in which said reservation may be hiereinafterincorporated, except where the decedent leaves no issue, nor husband Exception.

nor wife, in which case said lands, moneys, and mineral interests mustgo to the mother and father equally.

SaC. 7. That the lands herein provided for are set aside for the sole Leases for farming

use and benefit of the individual members of the tribe entitled thereto, purposes.

or to their heirs, as herein provided, and said members, or their heirs,shall have the right to use and to lease said lands for farming, grazing,or any other purpose not otherwise specifically provided for herein,and said members shall have full control of the same, including theproceeds thereof: Provded, That parents of minor members of the Provisos.

Parents to controltribe shall have the control and use of said minors' lands, together with minors' lands.

the proceeds of the same, until said minors arrive at their majority:And prorbded frter, That all leases given on said lands for thle Approval of leases.benefit of the individual members of the tribe entitled thereto, or fortheir heirs, shall be subject only to the approval of the Secretary ofthe Interior.

SEC. 8. That all deeds to said Osage lands or any part thereof shall Deeds.

be executed by the principal chief for the Osages, but no such deedsshall be valid until approved by the Secretary of the Interior.

SEC. 9. That there shall be' a biennial election of officers for the Tribal ofcers.Osage tribe as follows: A principal chief, an assistant principal chief, Elections, etc.

and eight members of the Osage tribal council, to succeed the officerselected in the year nineteen hundred and six, said officers to be electedat a general election to be held in the town of Pawhuska, OklahomaTerritorv, on the first Monday in June; and the first election for saidofficers shall be held on the first Monday in June, nineteen hundredand eight. in the manner to be prescribed by the Commissioner ofIndian Affairs, and said officers shall be elected for a period of twoyears, commencing on the first day of July following said election, andin case of a vacancv in the office of principal chief, by death, resigna-tion, or otherwise, the assistant principal chief shall succeed to saidoffice, and all vacancies in the Osage tribal council shall be filled in amanner to be prescribed by the Osage tribal council, and the Secretaryof the Interior is hereby authorized to remove from the council anymember or members thereof for good cause, to be by him determined.

SEc. 10. That public highways or roads, two rods in width, being Public highways.

one rod on each side of all section lines, in the Osage Indian Reserva-tion, may be established without any compensation therefor.

SEc. 11. That all lands taken or condemned by any railroad cor_ Lands for railroadM_ purposes,

pany in the Osage Reservation, in pursuance of any Act of Congress Vol. 32, p. 47.or regulation of the Department of the Interior, for rights of way,station grounds, side tracks, stock pens and cattle yards, water stations,terminal facilities, and any other railroad purpose, shall be, and arehereby, reserved from selection and allotment and confirmed in suchrailroad companies for their use and benefit in the construction

h Proiso.operation. and maintenance of their railroads: Provided, That sucg IResriotion.railroad companies shall not take or acquire hereby any right or titleto any oil, gas, or other mineral in any of said lands.

Sac. 12. That all things necessary to carry into effect the provisions Enforcement-of this Act not otherwise herein specifically provided for shall be doneunder the authority and direction of the Secretary of the Interior.

Approved, ,June 28, 1906.VOL XXXIV. PT 1-35

546 F-4FTY-NINTfl CONGRESS. SESS. I. Ciis. 3573-3576. 1906.

lune 28, 1906. CHAP. 3573.-An Act To provide a seal for United States commissioners.[H. R. 7.]

[Public, No. 322.1 Be it enacted by the Senate and House of Representatives of the United

United Statescourts. States of America in Congress assembled, That each United StatesSeal of commis- commissioner shall provide himself with an official impression seal, tosioners,Use of. be prescribed by the Attorney-General, which said seal shall be affixed

Fees. to each jurat or certificate of the official acts of said commissioner, butno increase of fees shall be allowed by reason thereof.


June 28, 1906. CHAP. 3574.-An Act To amend section fifty-four hundred and eighty-one of

[H. R. 9721.] the Revised Statutes of the United States.[Public. No. 323.]

Be it enacted by the Senate and House of Representatives of the UnhitedOfficial misconduct. States of'Aerica in Conress assembled, That section fifty-four hun-R. S., sec. 5481, p.

1063, amended. dred and eighty-one of the Revised Statutes of the United States be,and the same is hereby, amended to read as follows:

Extortion. "SEC. 5481. Every officer, clerk, agent, or employee of the UnitedPunishment for, ex-

tended to clerks and States, and every person representing himself to be or assuming toemployees. act as such officer, clerk, agent, or employee, who is guilty of extor-

tion, under color of his office, clerkship, agency, or employment, orunder color of his pretended or assumed office, clerkship, agency, oremployment, and every person who shall attempt any act which if

Penalty. performed would make him guilty of such extortion, shall be punishedby a fine of not more than five hundred dollars or by imprisonmentfor not more than one year, or by both such fine and imprisonment,except those officers or agents of the United States otherwise differ-ently and specially provided for in the subsequent sections of thischapter."


June 28. 1906. CHAP. 3575.-An Act In relation to contracts with the District of Columbia.[H. R. 10074.]

[Public, No. 324.1 Be it enacted by the Senate and House of Representatives (f the United

Districtof Columbia. States ofAnerica in Congress assembled, That in all cases where theNobond required in Commissioners of the District of Columbia contract for work or

contracts less thanfive hundred dollars,. material involving a sun not exceeding live hundred dollars, it Shall

Vol. 83, p. sl. not be necessary for said Commissioners to require a bond with said.Restriction. contract; but no work capable of execution under a single contract,

nor any purchase of material where the total expenditure involved isgreater than five hundred dollars, shall be subdivided or lessened forthe purpbse of reducing the sum of money to be paid therefor to lessthan that amount.

Repeal. SEC. 2. That all laws or parts of laws inconsistent with the pro-visions hereof are hereby repealed.


June 28, 1906.[H. R. 11029.]

[Public, No. 325.]I

United States courts.Virginiawestern dis-

trict.Vol. 33, p. 249.

CHAP. 3576.-An Act To authorize the holding of a regular term of the districtand circuit courts of the United States for the western district of Virginia in the cityof Big Stone Gap, Virginia.

Be it enacted by the Senate and Hbouse of Representatives of the UnitedStates of Amer ca in Congress assembled, That chapter fourteen hun-dred and twenty-one, entitled "An Act to authorize holding of theregular term of the district and circuit courts of the United States for

Current Regulations—25 C.F.R. Part 226 (April 1, 2015)

§ 225.38

the notice continue beyond the timelimits presented for corrective action.The Secretary may issue a written sus-pension of the requirement to correctthe violations pending completion ofthe hearings provided by this sectiononly upon a determination, at the dis-cretion of the Secretary, that such asuspension will not be detrimental tothe Indian mineral owner and uponsubmission and acceptance of a bonddeemed adequate to indemnify the In-dian mineral owner from loss or dam-age. The amount of the bond must besufficient to cover the cost of cor-recting the violations set forth in thenotice or any disputed amounts plusaccrued penalties and interest.

(e) Payment of penalties in full morethan ten (10) days after a final decisionimposing a penalty shall subject theoperator to late payment charges. Latepayment charges shall be calculated onthe basis of a percentage assessmentrate of the amount unpaid per monthfor each month or fraction thereofuntil payment is received by the Sec-retary. In the absence of a specific min-erals agreement provision prescribing adifferent rate, the interest rate on latepayments and underpayments shall bea rate applicable under section6621(a)(2) of the Internal Revenue Codeof 1954. Interest shall be charged onlyon the amount of payment not receivedand only for the number of days thepayment is late.

(f) None of the provisions of this sec-tion shall be interpreted as:

(1) Replacing or superseding the inde-pendent authority of the AuthorizedOfficer, the Director's Representative,or the MMS Official to impose pen-alties under applicable statutory orregulatory authorities;

(2) Replacing, superseding, or repli-cating any penalty provision in theterms and conditions of a mineralsagreement approved by the Secretarypursuant to this part; or

(3) Authorizing the imposition of apenalty for violations of mineralsagreement provisions for which the Au-thorized Officer, Director's Representa-tive, or MMS Official has either statu-tory or regulatory authority to assessa penalty.

25 CFR Ch. 1 (4-1-15 Edition)

§ 225.38 Appeals.

Appeals from decisions of Officials ofthe Bureau of Indian Affairs under thispart may be taken pursuant to 25 CFRpart 2.

§ 225.39 Fees.

(a) Unless otherwise authorized bythe Secretary, each minerals agree-ment or assignment thereof, shall beaccompanied by a filing fee of $75.00 atthe time of filing.

(b) An Indian mineral owner shall notbe required to pay a filing fee if the In-dian mineral owner, pursuant to a pro-vision in the existing minerals agree-ment, acquires an additional interestin that minerals agreement.

§225.40 Government employees cannotacquire minerals agreements.

U.S. Government employees are pre-vented from acquiring any interest(s)in minerals agreements by the provi-sions of 25 CFR part 140 and 43 CFRpart 20 pertaining to conflicts of inter-est and ownership of an interest intrust land.

PART 226-LEASING OF OSAGERESERVATION LANDS FOR OILAND GAS MINING

Sec.

226.1 Definitions.

LEASING PROCEDURE, RENTAL AND ROYALTY

226.2 Sale of leases.226.3 Surrender of lease.226.4 Form of payment.226.5 Leases subject to current regulations.226.6 Bonds.226.7 Provisions of forms made a part of the

regulations.226.8 Corporation and corporate informa-

tion.226.9 Rental and drilling obligations.226.10 Term of lease.226.11 Royalty payments.226.12 Government reserves right to pur-

chase oil.226.13 Time of royalty payments and re-

ports.226.14 Contracts and division orders.226.15 Unit leases, assignments and related

instruments.

OPERATIONS

226.16 Commencement of operations.

Bureau of Indian Affairs, Interior

226.17 How to acquire permission to beginoperations on a restricted homestead al-lotment.

226.18 Information to be given surface own-ers prior to commencement of drillingoperations.

226.19 Use of surface of land.226.20 Settlement of damages claimed.226.21 Procedure for settlement of damages

claimed.226.22 Prohibition of pollution.226.23 Easements for wells off leased prem-

ises.226.24 Lessee's use of water.226.25 Gas well drilled by oil lessees and

vice versa.226.26 Determining cost of well.226.27 Gas for operating purposes and tribal

use.

CESSATION OF OPERATIONS

226.28 Shutdown, abandonment, and plug-ging of wells.

226.29 Disposition of casings and other im-provements.

REQUIREMENTS OF LESSEES

226.30 Lessees subject to Superintendent'sorders; books and records open to inspec-tion.

226.31 Lessee's process agents.226.32 Well records and reports.226.33 Line drilling.226.34 Wells and tank batteries to be

marked.226.35 Formations to be protected.226.36 Control devices.226.37 Waste of oil and gas.226.38 Measuring and storing oil.226.39 Measurement of gas.226.40 Use of gas for lifting oil.226.41 Accidents to be reported.

PENALTIES

226.42 Penalty for violation of lease terms.226.43 Penalties for violation of certain op-

erating regulations.

APPEALS AND NOTICES

226.44 Appeals.226.45 Notices.226.46 Information collection.

AUTHORITY: Sec. 3, 34 Stat. 543; secs. 1, 2, 45Stat. 1478; sec. 3, 52 Stat. 1034, 1035; sec. 2(a),92 Stat. 1660.

SOURCE: 39 FR 22254, June 21, 1974, unlessotherwise noted. Redesignated at 47 FR 13327,Mar. 30, 1982.

§ 226.1 Definitions.

As used in this part 226, terms shallhave the meanings set forth in this sec-tion.

§ 226.1

(a) Secretary means the Secretary ofthe Interior or his authorized rep-resentative acting under delegated au-thority.

(b) Osage Tribal Council means theduly elected governing body of theOsage Nation or Tribe of Indians ofOklahoma vested with authority tolease or take other actions on oil andgas mining pertaining to the OsageMineral Estate.

(c) Superintendent means the Super-intendent of the Osage Agency,Pawhuska, Oklahoma, or his author-ized representative acting under dele-gated authority.

(d) Oil lessee means any person, firm,or corporation to whom an oil mininglease is made under the regulations inthis part.

(e) Gas lessee means any person, firm,or corporation to whom a gas mininglease is made under the regulations inthis part.

(f) Oil and gas lessee means any per-son, firm, or corporation to whom anoil and gas mining lease is made underthe regulations in this part.

(g) Primary term means the basic pe-riod of time for which a lease is issuedduring which the lease contract may bekept in force by payment of rentals.

(h) Major purchaser means any one ofthe minimum number of purchaserstaking 95 percent of the oil in OsageCounty, Oklahoma. Any oil purchasedby a purchaser from itself, its subsidi-aries, partnerships, associations, orother corporations in which it has a fi-nancial or management interest shallbe excluded from the determination ofa major purchaser.

(i) Casinghead gas means gas pro-duced from an oil well as a consequenceof oil production from the same forma-tion.

(j) Natural gas means any fluid, eithercombustible or noncombustible, recov-ered at the surface in the gaseousphase and/or hydrocarbons recovered atthe surface as liquids which are the re-sult of condensation caused by reduc-tion of pressure and temperature of hy-drocarbons originally existing in a res-ervoir in the gaseous phase.

(k) Authorized representative of an oillessee, gas lessee, or oil and gas lesseemeans any person, group, or groups of

§ 226.2

persons, partnership, association, com-pany, corporation, organization oragent employed by or contracted witha lessee or any subcontractor to con-duct oil and gas operations or providefacilities to market oil and gas.

(1) Oil well means any well which pro-duces one (1) barrel or more of crudepetroleum oil for each 15,000 standardcubic feet of natural gas.

(m) Gas well means any well which:(1) Produces natural gas not associ-

ated with crude petroleum oil at thetime of production or

(2) Produces more than 15,000 stand-ard cubic feet of natural gas to eachbarrel of crude petroleum oil from thesame produeing formation.

[39 FR 22254, June 21, 1974, as amended at 41FR 50648, Nov. 17, 1976; 43 FR 8135, Feb. 28,1978. Redesignated at 47 FR 13327, Mar. 30,1982, as amended at 55 FR 33114, Aug. 14, 1990]

LEASING PROCEDURE, RENTAL ANDROYALTY

§ 226.2 Sale of leases.

(a) Written application, togetherwith any nomination fee, for tracts tobe offered for lease shall be filed withthe Superintendent.

(b) The Superintendent, with the con-sent of the Osage Tribal Council, shallpublish notices for the sale of oilleases, gas leases, and oil and gasleases to the highest responsible bidderon specific tracts of the unleased OsageMineral Estate. The Superintendentmay require any bidder to submit sat-isfactory evidence of his good faith andability to comply with all provisions ofthe notice of sale. Successful biddersmust deposit with the Superintendenton day of sale a check or cash in anamount not less than 25 percent of thecash bonus offered as a guaranty ofgood faith. Any and all bids shall besubject to the acceptance of the OsageTribal Council and approval of the Su-perintendent. Within 20 days after noti-fication of being the successful bidder,and said bidder must submit to the Su-perintendent the balance of the cashbonus, a $10 filing fee, and the lease incompleted form. The Superintendentmay extend the time for the comple-tion and submission of the lease form,but no extension shall be granted forremitting the balance of moneys due. If


the bidder fails to pay the full cashconsideration within said period orfails to file the completed lease withinsaid period or extention thereof, or ifthe lease is rejected through no fault ofthe Osage Tribal Council or the Super-intendent, 25 percent of the cash bonusbid will be forfeited for the use andbenefits of the Osage Tribe. The Super-intendent may reject a lease made onan accepted bid, upon evidence satis-factory to him of collusion, fraud, orother irregularity in connection withthe notice of sale. The Superintendentmay approve oil leases, gas leases, andoil and gas leases made by the OsageTribal Council in conformity with thenotice of sale, regulations in this part,bonds, and other instruments required.

(c) Each oil and/or gas lease and ac-tivities and installations associatedtherewith subject to these regulationsshall be assessed and evaluated for itsenvironmental impact prior to its ap-proval by the Superintendent.

(d) Lessee shall accept a lease withthe understanding that a mineral notcovered by his lease may be leased sep-arately.

(e) No lease, assignment thereof, orinterest therein will be approved toany employee or employees of the Gov-ernment and no such employee shall bepermitted to acquire any interest inleases covering the Osage Mineral Es-tate by ownership of stock in corpora-tions having leases or in any othermanner.

(f) The Osage Tribal Council may uti-lize the following procedures amongothers, in entering into a mining lease.A contract may be entered intothrough competitive bidding as out-lined in §226.2(b), negotiation, or acombination of both. The Osage TribalCouncil may also request the Super-intendent to undertake the prepara-tion, advertisement and negotiation.The Superintendent may approve anysuch contract made by the Osage Trib-al Council.

[39 FR 22254, June 21, 1974, as amended at 43FR 8135, Feb. 28, 1978. Redesignated at 47 FR13327, Mar. 30, 1982]

§ 226.3 Surrender of lease.

Lessee may, with the approval of theSuperintendent and payment of a $10filing fee, surrender all or any portion


of any lease, have the lease cancelledas to the portion surrendered and be re-lieved from all subsequent obligationsand liabilities. If the lease, or portionbeing surrendered, is owned in undi-vided interests by more than one party,then all parties shall join in the appli-cation for cancellation: Provided, Thatif this lease has been recorded, Lesseeshall execute a release and record thesame in the proper office. Such sur-render shall not entitle Lessee to a re-fund of the unused portion of rentalpaid in lieu of development, nor shall itrelieve Lessee and his sureties of anyobligation and liability incurred priorto such surrender: Provided further,That when there is a partial surrenderof any lease and the acreage to be re-tained is less than 160 acres or there isa surrender of a separate horizon, suchsurrender shall become effective onlywith the consent of the Osage TribalCouncil and approval of the Super-intendent.

[43 FR 8135, Feb. 28, 1978. Redesignated at 47FR 13327, Mar. 30, 1982]

§ 226.4 Form of payment.

Sums due under a lease contract and/or the regulations in this part shall bepaid by cash or check made payable tothe Bureau of Indian Affairs and deliv-ered to the Osage Agency, Pawhuska,Oklahoma 74056. Such sums shall be aprior lien on all equipment and unsoldoil on the leased premises.

§226.5 Leases subject to current regu-

lations.

Leases issued pursuant to this partshall be subject to the current regula-tions of the Secretary, all of which aremade a part of such leases: Provided,That no amendment or change of suchregulations made after the approval ofany lease shall operate to affect theterm of the lease, rate of royalty, rent-al, or acreage unless agreed to by bothparties and approved by the Super-intendent.

§ 226.6 Bonds.

Lessees shall furnish with each leasea corporate surety bond acceptable tothe Superintendent as follows:

(a) A bond on Form D shall be filedwith each lease submitted for approval.Such bond shall be in an amount of not

§ 226.8

less than $5,000 for each quarter sectionor fractional quarter section coveredby said lease: Provided, however, Thatone bond in the penal sum or not lessthan $50,000 may be filed on Form Gcovering all oil, gas and combinationoil and gas leases not in excess of 10,240acres to which Lessee is or may becomea party.

(b) In lieu of the bonds requiredunder paragraph (a) of this section, abond in the penal sum of $150,000 maybe filed on Form 5-5438 for full nation-wide coverage of all leases, without ge-ographic or acreage limitation, towhich the Lessee is or may become aparty.

(e) A bond on Form H shall be filed inan amount of not less than $5,000 cov-ering a lease acquired through assign-ment where the assignee does not havea collective bond on form G or nation-wide bond, or the corporate surety doesnot execute its consent to remainbound under the original bond given tosecure the faithful performance of theterms and conditions of the lease.

(d) The right is specifically reservedto increase the amount of bonds pre-scribed in paragraphs (a) and (c) of thissection in any particular case when theSuperintendent deems it proper. Thenationwide bond may be increased atany time in the discretion of the Sec-retary.

[39 FR 22254, June 21, 1974, as amended at 43FR 8135, Feb. 28, 1978; 43 FR 11815, Mar. 22,1978. Redesignated at 47 FR 13327, Mar. 30,1982, as amended at 55 FR 33114, Aug. 14, 1990]

§ 226.7 Provisions of forms made apart of the regulations.

Leases, assignments, and supportinginstruments shall be in the form pre-scribed by the Secretary, and suchforms are hereby made a part of theregulations.

§226.8 Corporation and corporate in-formation.

(a) If the applicant for a lease is acorporation, it shall file evidence of au-thority of its officers to execute pa-pers; and with its first application itshall also file a certified copy of its Ar-ticles of Incorporation and, if foreignto the State of Oklahoma, evidenceshowing compliance with the corpora-tion laws thereof.

§ 226.9

(b) Whenever deemed advisable theSuperintendent may require a corpora-tion to file any additional informationnecessary to carry out the purpose andintent of the regulations in this part,and such information shall be fur-nished within a reasonable time.

§ 226.9 Rental and drilling obligations.

(a) Oil leases, gas leases, and com-bination oil and gas leases. Unless Les-see shall complete and place on produc-tion a well producing and selling oiland/or gas in paying quantities on theland embraced within the lease within12 months from the date of approval ofthe lease, or as otherwise provided inthe lease terms, or 12 months from thedate the Superintendent consents todrilling on any restricted homesteadselection, the lease shall terminate un-less rental at the rate of not less than$1 per acre for an oil or gas lease, ornot less than $2.00 per acre for a com-bination oil and gas lease, shall be paidbefore the end of the first year of thelease. The lease may also be held forthe remainder of its primary termwithout drilling upon payment of thespecified rental annually in advance,commencing with the second leaseyear. The lease shall terminate as ofthe due date of the rental unless suchrental shall be received by the Super-intendent, or shall have been mailed asindicated by postmark on or beforesaid date. The completion of a well pro-ducing in paying quantities shall, forso long as such production continues,relieve Lessee from any further pay-ment of rental, except that should suchproduction cease during the primaryterm the lease may be continued onlyduring the remaining primary term ofthe lease by payment of advance rentalwhich shall commence on the next an-niversary date of the lease. Rentalshall be paid on the basis of a full yearand no refund will be made of advancerental paid in compliance with the reg-ulations in this part: Provided, Thatthe Superintendent in his discretionmay order further development of anyleased acreage or separate horizon if, inhis opinion, a prudent operator wouldconduct further development. If Lesseerefuses to comply, the refusal will beconsidered a violation of the leaseterms and said lease shall be subject to


cancellation as to the acreage or hori-zon the further development of whichwas ordered: Provided further, That theSuperintendent may impose restric-tions as to time of drilling and rate ofproduction from any well or wells whenin his judgment, such action may benecessary or proper for the protectionof the natural resources of the leasedland and the interests of the OsageTribe. The superintendent may con-sider, among other things, Federal andOklahoma laws regulating either drill-ing or production. If a lessee holds bothan oil lease and a gas lease coveringthe same acreage, such lessee is subjectto the provisions of this section as toboth the oil lease and the gas lease.

(b) The Superintendent may, withthe consent of and under terms ap-proved by the Osage Tribal Council,grant an extension of the primary termof a lease on which the actual drillingof a well shall have commenced withinthe term thereof or for the purpose ofenabling Lessee to obtain a market forhis oil and/or gas production.


§226.10 Term of lease.

Leases issued hereunder shall be for aprimary term as established by theOsage Tribal Council, approved by theSuperintendent, and so stated in thenotice of sale of such leases and so longthereafter as the minerals specified areproduced in paying quantities.


§ 226.11 Royalty payments.

(a) Royalty on oil (1) Royalty rate.Lessee shall pay or cause to be paid tothe Superintendent, as royalty, thesum of not less than 1623 percent of thegross proceeds from sales after deduct-ing the oil used by Lessee for develop-ment and operation purposes on thelease: Provided, That when the quantityof oil taken from all the producingwells on any quarter-section or frac-tion thereof, according to the publicsurvey, during any calendar month issufficient to average one hundred ormore barrels per active producing wellper day the royalty on such oil shall benot less than 20 percent. The Osage


Tribal Council may, upon presentationof justifiable economic evidence byLessee, agree to a revised royalty ratesubject to approval by the Super-intendent, applicable to additional oilproduced from a lease or leases by en-hanced recovery methods, which rateshall not be less than 121/2 percent ofthe gross proceeds from sale of oil pro-duced by enhanced recovery processes,other than gas injection, after deduct-ing the oil used by Lessee for develop-ment and operating purposes on thelease or leases.

(2) Unless the Osage Tribal Council,with approval of the Secretary, shallelect to take the royalty in kind, pay-ment is owing at the time of sale or re-moval of the oil, except where pay-ments are made on division orders, andsettlement shall be based on the actualselling price, but at not less than thehighest posted price by a major pur-chaser (as defined in §226.1(h)) in OsageCounty, Oklahoma, who purchases pro-duction from Osage oil leases.

(3) Royalty in kind. Should Lessor,with approval of the Secretary, elect totake the royalty in kind, Lessee shallfurnish free storage for royalty oil fora period not to exceed 60 days fromdate of production after notice of suchelection.

(b) Royalty on gas (1) Oil lease. Allcasinghead gas shall belong to the oilLessee subject to any rights under ex-isting gas leases. All casinghead gas re-moved from the lease from which it isproduced shall be metered unless other-wise approved by the Superintendentand be subject to a royalty of not lessthan 162/3 percent of the market valueof the gas and all products extractedtherefrom, less a reasonable allowancefor manufacture or processing. If an oilLessee supplies casinghead gas pro-duced from one lease for operation and/or development of other leases, eitherhis/hers or others, a royalty of not lessthan 162/3 percent shall be paid on themarket value of all casinghead gas soused. All casinghead gas not utilized bythe oil Lessee may, with the approvalof the Superintendent, be utilized orsold by the gas Lessee, subject to theprescribed royalty of not less than 162/3percent of the market value.

(2) Gas lease. Lessee shall pay a roy-alty of not less than 1623 percent of the

§ 226.13

market value value of all natural gasand products extracted therefrom pro-duced and sold from his lease. Naturalgas used in the reasonable and prudentoperation and development of saidlease shall be exempted from royaltypayment.

(3) Combination oil and gas lease. Les-see shall pay royalty as provided inparagraphs (b)(1) and (2) of this section.

(c) Minimum royalty. In no event shallthe royalty paid from producing leasesduring any year be less than an amountequal to the annual rental specified forthe lease. Any underpayment of min-imum royalty shall be due and payablewithin 45 days following the end of thelease year. After the primary term,Lessee shall submit with his paymentevidence that the lease is producing inpaying quantities. The Superintendentis authorized to determine whether thelease is actually producing in payingquantities or has terminated for lackof such production. Payment for anyunderpayment not made within thetime specified shall be subject to a latecharge at the rate of not less than 11/2percent per month for each month orfraction thereof until paid.

[39 FR 22254, June 21, 1974, as amended at 43FR 8136, Feb. 28, 1978; 43 FR 11815, Mar. 22,1978. Redesignated at 47 FR 13327, Mar. 30,1982, as amended at 55 FR 33114, Aug. 14, 1990;59 FR 22104, Apr. 28, 1994]

§226.12 Government reserves right topurchase oil.

Any of the executive departments ofthe U.S. Government shall have the op-tion to purchase all or any part of theoil produced from any lease at not lessthan the highest posted price as de-fined in §226.11.

§ 226.13 Time of royalty payments and

reports.

(a) Royalty payments due may bepaid by either purchaser or Lessee. Un-less otherwise provided by the OsageTribal Council and approved by the Su-perintendent, all payments shall be dueby the 25th day of each month andshall cover the sales of the precedingmonth. Failure to make such paymentsshall subject Lessee or purchaser, who-ever is responsible for royalty pay-ment, to a late charge at the rate ofnot less than 11/2 percent for each

§ 226.14

month or fraction thereof until paid.The Osage Tribal Council, subject tothe approval of the Superintendent,may waive the late charges.

(b) Lessee shall furnish certifiedmonthly reports by the 25th of eachfollowing month covering all oper-ations, whether there has been produc-tion or not, indicating therein thetotal amount of oil, natural gas,casinghead gas, and other productssubject to royalty payment.

(c) Failure to remit payments or re-ports shall subject Lessee to furtherpenalties as provided in §§226.42 and226.43 and shall subject the divisionorder to cancellation.

[39 FR 22254, June 21, 1974. Redesignated at 47FR 13327, Mar. 30, 1982, as amended at 55 FR33114, Aug. 14, 1990]

§ 226.14 Contracts and division orders.

(a) Lessee may enter into division or-ders or contracts with the purchasersof oil, gas, or derivatives therefromwhich will provide for the purchaser tomake payment of royalty in accord-ance with his lease: Provided, That suchdivision orders or contracts shall notrelieve Lessee from responsibility forthe payment of the royalty should thepurchaser fail to pay. No productionshall be removed from the leased prem-ises until a division order and/or con-tract and its terms are approved by theSuperintendent: Provided further, Thatthe Superintendent may grant tem-porary permission to run oil or gasfrom a lease pending the approval of adivision order or contract. Lessee shallfile a certified monthly report and payroyalty on the value of all oil and gasused off the premises for developmentand operating purposes. Lessee shall beresponsible for the correct measure-ment and reporting of all oil and/or gastaken from the leased premises.

(b) Lessee shall require the purchaserof oil and/or gas from his/her lease orleases to furnish the Superintendent,no later than the 25th day of eachmonth, a statement reporting the grossbarrels of oil and/or gross Mcf of gassold during the preceding month. TheSuperintendent may authorize an ex-


tension of time, not to exceed 10 days,for furnishing this statement.


§226.15 Unit leases, assignments and

related instruments.

(a) Unitization of leases. The OsageTribal Council and Lessee or Lessees,may, with the approval of the Super-intendent, unitize or merge, two ormore oil or oil and gas leases into aunit or cooperative operating plan topromote the greatest ultimate recov-ery of oil and gas from a commonsource of supply or portion thereof em-bracing the lands covered by such leaseor leases. The cooperative or unitagreement shall be subject to the regu-lations in this part and applicable lawsgoverning the leasing of the Osage Min-eral Estate. Any agreement betweenthe parties in interest to terminate aunit or cooperative agreement as to allor any portion of the lands includedshall be submitted to the Super-intendent for his approval. Upon ap-proval the leases included thereundershall be restored to their originalterms: Provided, That for the purpose ofpreventing waste and to promote thegreatest ultimate recovery of oil andgas from a common source of supply orportion thereof, all oil leases, oil andgas leases, and gas leases issued here-tofore and hereafter under the provi-sions of the regulations in this partshall be subject to any unit develop-ment plan affecting the leased landsthat may be required by the Super-intendent with the consent of theOsage Tribal Council, and which planshall adequately protect the rights ofall parties in interest including theOsage Mineral Estate.

(b) Assignments. Approved leases orany interest therein may be assignedor transferred only with the approvalof the Superintendent. The assigneemust be qualified to hold such leaseunder existing rules and regulationsand shall furnish a satisfactory bondconditioned for the faithful perform-ance of the covenants and conditionsthereof. Lessee must assign either hisentire interest in a lease or legal sub-division thereof, or an undivided inter-est in the whole lease: Provided, That


when an assignment covers only a por-tion of a lease or covers interests inseparate horizons such assignmentshall be subject to both the consent ofthe Osage Tribal Council and approvalof the Superintendent. If a lease is di-vided by the assignment of an entireinterest in any part, each part shall beconsidered a separate lease and the as-signee shall be bound to comply withall the terms and conditions of theoriginal lease. A fully executed copy ofthe assignment shall be filed with theSuperintendent within 30 days afterthe date of execution by all parties. Ifrequested within the 30-day period, theSuperintendent may grant an exten-sion of 15 days. A filing fee of $10 shallaccompany each assignment.

(c) Overriding royalty. Agreementscreating overriding royalties or pay-ments out of production shall not beconsidered as an interest in a lease assuch term is used in paragraph (b) ofthis section. Agreements creating over-riding royalties or payments out ofproduction are hereby authorized andthe approval of the Department of theInterior or any agency thereof shallnot be required with respect thereto,but such agreements shall be subject tothe condition that nothing in any suchagreement shall be construed as modi-fying any of the obligations of Lesseeunder his lease and the regulations inthis part. All such obligations are toremain in full force and effect, thesame as if free of any such royalties orpayments. The existence of agreementscreating overriding royalties or pay-ments out of production, whether ornot acutally paid, shall not be consid-ered in justifying the shutdown orabandonment of any well. Agreementscreating overriding royalties or pay-ments out of production need not befiled with the Superintendent unlessincorporated in assignments or instru-ments required to be filed pursuant toparagraph (b) of this section. An agree-ment creating overriding royalties orpayment out of production shall be sus-pended when the working interest in-come per active producing well is equalto or less than the operational cost ofthe well, as determined by the Super-intendent.

(d) Drilling contracts. The Super-intendent is authorized to approve

§ 226.17

drilling contracts with a stipulationthat such approval does not in any waybind the Department to approve subse-quent assignments that may be pro-vided for in said contracts. Approvalmerely authorizes entry on the leasefor the purpose of development work.

(e) Combining leases. The lessee own-ing both an oil lease and gas lease cov-ering the same acreage is authorized toconvert such leases to a combinationoil and gas lease.


OPERATIONS

§ 226.16 Commencement of operations.

(a) No operations shall be permittedupon any tract of land until a leasecovering such tract shall have been ap-proved by the Superintendent: Pro-vided, That the Superintendent maygrant authority to any party undersuch rules, consistent with the regula-tions in this part that he deems proper,to conduct geophysical and geologicalexploration work.

(b) Lessee shall submit applicationson forms to be furnished by the Super-intendent and secure his approval be-fore:

(1) Well drilling, treating, orworkover operations are started on theleased premises.

(2) Removing casing from any well.(c) Lessee shall notify the Super-

intendent a reasonable time in advanceof starting work, of intention to drill,redrill, deepen, plug, or abandon a well.

§ 226.17 How to acquire permission tobegin operations on a restrictedhomestead allotment.

(a) Lessee may conduct operationswithin or upon a restricted homesteadselection only with the written consentof the Superintendent.

(b) If the allottee is unwilling to per-mit operations on his homestead, theSuperintendent will cause an examina-tion of the premises to be made withthe allottee and lessee or his represent-ative. Upon finding that the interestsof the Osage Tribe require that thetract be developed, the Superintendentwill endeavor to have the parties agree

§ 226.18

upon the terms under which operationson the homestead may be conducted.

(c) In the event the allottee and les-see cannot reach an agreement, thematter shall be presented by all partiesbefore the Osage Tribal Council, andthe Council shall make its rec-ommendations. Such recommendationsshall be considered as final and bindingupon the allottee and lessee. A guard-ian may represent the allottee. Whereno one is authorized or where no personis deemed by the Superintendent to bea proper party to speak for a person ofunsound mind or feeble understanding,the Principal Chief of the Osage Tribeshall represent him.

(d) If the allottee or his representa-tive does not appear before the OsageTribal Council when notified by the Su-perintendent, or if the Council fails toact within 10 days after the matter isreferred to it, the Superintendent mayauthorize lessee to proceed with oper-ations in conformity with the provi-sions of his lease and the regulations inthis part.

§ 226.18 Information to be given sur-face owners prior to commence-ment of drilling operations.

Except for the surveying and stakingof a well, no operations of any kindshall commence until the lessee or his/her authorized representative shallmeet with the surface owner or his/herrepresentative, if a resident of andpresent in Osage County, Oklahoma.Unless waived by the Superintendentor otherwise agreed to between the les-see and surface owner, such meetingshall be held at least 10 days prior tothe commencement or any operations,except for the surveying and staking ofthe well. At such meeting lessee or his/her authorized representative shallcomply with the following require-ments:

(a) Indicate the location of the wellor wells to be drilled.

(b) Arrange for route of ingress andegress. Upon failure to agree on routeingress and egress, said route shall beset by the Superintendent.

(c) Impart to said surface owners thename and address of the party or rep-resentative upon whom the surfaceowner shall serve any claim for dam-ages which he may sustain from min-


eral development or operations, and asto the procedure for settlement thereofas provided in §226.21

(d) Where the drilling is to be on re-stricted land, lessee or his authorizedrepresentative in the manner providedabove shall meet with the Super-intendent.

(e) When the surface owner or his/herrepresentative is not a resident of, or isnot physically present in, Osage Coun-ty, Oklahoma, or cannot be contactedat the last known address, the Super-intendent may authorize lessee to pro-ceed with operations.

[39 FR 22254, June 21, 1974, as amended at 41FR 50648, Nov. 17, 1976; 43 FR 8136, Feb. 28,1978. Redesignated at 47 FR 13327, Mar. 30,1982, as amended at 55 FR 33115, Aug. 14, 1990]

§ 226.19 Use of surface of land.

(a) Lessee or his/her authorized rep-resentative shall have the right to useso much of the surface of the landwithin the Osage Mineral Estate asmay be reasonable for operations andmarketing. This includes but is notlimited to the right to lay and main-tain pipelines, electric lines, pull rods,other appliances necessary for oper-ations and marketing, and the right-of-way for ingress and egress to any pointof operations. If Lessee and surfaceowner are unable to agree as to therouting of pipelines, electric lines, etc.,said routing shall be set by the Super-intendent. The right to use water forlease operations is established by§226.24. Lessee shall conduct his/her op-erations in a workmanlike manner,commit no waste and allow none to becommitted upon the land, nor permitany unavoidable nuisance to be main-tained on the premises under his/hercontrol.

(b) Before commencing a drilling op-eration, Lessee shall pay or tender tothe surface owner commencementmoney in the amount of $25 per seismicshot hole and commencement money inthe amount of $300 for each well, afterwhich Lessee shall be entitled to im-mediate possession of the drilling site.Commencement money will not be re-quired for the redrilling of a well whichwas originally drilled under the cur-rently lease. A drilling site shall beheld to the minimum area essential foroperations and shall not exceed one


and one-half acres in area unless au-thorized by the Superintendent. Com-mencement money shall be a credit to-ward the settlement of the total dam-ages. Acceptance of commencementmoney by the surface owner does notaffect his/her right to compensation fordamages as described in §226.20, occa-sioned by the drilling and completionof the well for which it was paid. Sinceactual damage to the surface from op-erations cannot necessarily beascertained prior to the completion ofa well as a serviceable well or dry hole,a damage settlement covering thedrilling operation need not be madeuntil after completion of drilling oper-ations.

(c) Where the surface is restrictedland, commencement money shall bepaid to the Superintendent for thelandowner. All other surface ownersshall be paid or tendered such com-mencement money direct. Where suchsurface owners are not residents ofOsage County nor have a representa-tive located therein, such paymentshall be made or tendered to the lastknown address of the surface owner atleast 5 days before commencing drill-ing operation on any well: Provided,That should lessee be unable to reachthe owner of the surface of the land forthe purpose of tendering the com-mencement money or if the owner ofthe surface of the land shall refuse toaccept the same, lessee shall depositsuch amount with the Superintendentby check payable to the Bureau of In-dian Affairs. The superintendent shallthereupon advise the owner of the sur-face of the land by mail at his lastknown address that the commence-ment money is being held for paymentto him upon his written request.

(d) Lessee shall also pay fees for tanksites not exceeding 50 feet square atthe rate of $100 per tank site or othervessel: Provided, That no payment shallbe due for a tank temporarily set on awell location site for drilling, com-pleting, or testing. The sum to be paidfor a tank occupying more than 50 feetsquare shall be agreed upon betweenthe surface owner and lessee or, on fail-ure to agree, the same shall be deter-

§ 226.20

mined by arbitration as provided by§ 226.21.

[39 FR 22254, June 22, 1974, as amended at 43FR 8136, Feb. 28, 1978; 43 FR 11815, Mar. 22,1978. Redesignated at 47 FR 13327, Mar. 30,1982, as amended at 55 FR 33115, Aug. 14, 1990]

§ 226.20 Settlement of damagesclaimed.

(a) Lessee or his authorized rep-resentative or geophysical permitteeshall pay for all damages to growingcrops, any improvements on the lands,and all other surface damages as maybe occasioned by operations. Com-mencement money shall be a credit to-ward the settlement of the total dam-ages occasioned by the drilling andcompletion of the well for which it waspaid. Such damages shall be paid to theowner of the surface and by him appor-tioned among the parties interested inthe surface, whether as owner, surfacelessee, or otherwise, as the parties maymutually agree or as their interestsmay appear. If lessee or his authorizedrepresentative and surface owner areunable to agree concerning damages,the same shall be determined by arbi-tration. Nothing herein contained shallbe construed to deny any party theright to file an action in a court ofcompetent jurisdiction if he is dissatis-fied with the amount of the award.

(b) Surface owners shall notify theirlessees or tenants of the regulations inthis part and of the necessary proce-dure to follow in all cases of allegeddamages. If so authorized in writing,surface lessees or tenants may rep-resent the surface owners.

(c) In settlement of damages on re-stricted land all sums due and payableshall be paid to the Superintendent forcredit to the account of the Indian en-titled thereto. The Superintendent willmake the apportionment between theIndian landowner or owners and sur-face Lessee of record.

(d) Any person claiming an interestin any leased tract or in damagesthereto, must furnish to the Super-intendent a statement in writing show-ing said claimed interest. Failure tofurnish such statement shall constitutea waiver of notice and estop said per-son from claiming any part of such

§ 226.21

damages after the same shall have beendisbursed.

[39 FR 22254, June 21, 1974, as amended at 41FR 50649, Nov. 17, 1976; 43 FR 8137, Feb. 28,1978. Redesignated at 47 FR 13327, Mar. 30,1982]

§226.21 Procedure for settlement of

damages claimed.

Where the surface owner or his lesseesuffers damage due to the oil and gasoperations and/or marketing of oil orgas by lessee or his authorized rep-resentative, the procedure for recoveryshall be as follows:

(a) The party or parties aggrievedshall, as soon as possible after the dis-covery of any damages, serve writtennotice to Lessee or his authorized rep-resentative as provided by §226.18.Written notice shall contain the natureand location of the alleged damages,the date of occurrence, the names ofthe party or parties causing said dam-ages, and the amount of damages. It isnot intended by this requirement tolimit the time within which actionmay be brought in the courts to lessthan the 90-day period allowed by sec-tion 2 of the Act of March 2, 1929 (45Stat. 1478, 1479).

(b) If the alleged damages are not ad-justed at the time of such notice, Les-see or his authorized representativeshall try to adjust the claim with theparty or parties aggrieved within 20days from receipt of the notice. If theclaimant is the owner of restrictedproperty and a settlement results, acopy of the settlement agreement shallbe filed with the Superintendent. If thesettlement agreement is approved bythe Superintendent, payment shall bemade to the Superintendent for thebenefit of said claimant.

(c) If the parties fail to adjust theclaim within the 20 days specified, thenwithin 10 days thereafter each of theinterested parties shall appoint an ar-bitrator who immediately upon theirappointment shall agree upon a thirdarbitrator. If the two arbitrators shallfail to agree upon a third arbitratorwithin 10 days, they shall immediatelynotify the parties in interest. If saidparties cannot agree upon a third arbi-trator within 5 days after receipt ofsuch notice, the Superintendent shallappoint the third arbitrator.


(d) As soon as the third arbitrator isappointed, the arbitrators shall meet;hear the evidence and arguments of theparties; and examine the lands, crops,improvements, or other property al-leged to have been injured. Within 10days they shall render their decision asto the amount of the damage due. Thearbitrators shall be disinterested per-sons. The fees and expenses of the thirdarbitrator shall be borne equally by theclaimant and Lessee or his authorizedrepresentative. Each Lessee or his au-thorized representative and claimantshall pay the fee and expenses for thearbitrator appointed by him.

(e) When an act of an oil or gas lesseeor his authorized representative resultsin injury to both the surface owner andhis lessee, the parties aggrieved shalljoin in the appointment of an arbi-trator. Where the injury complained ofis chargeable to one or more oil or gasLessee, or his authorized representa-tive, such lessee or said representativeshall join in the appointment of an ar-bitrator.

(f) Any two of the arbitrators maymake a decision as to the amount ofdamage due. The decision shall be inwriting and shall be served forthwithupon the parties in interest. Eachparty shall have 90 days from the datethe decision is served in which to filean action in a court of competent juris-diction. If no such action is filed withinsaid time and the award is against Les-see or his/her authorized representa-tive, he/she shall pay the same, to-gether with interest at an annual rateestablished for the Internal RevenueService from date of award, within 10days after the expiration of said periodfor filing an action.

(g) Lessee or his authorized rep-resentative shall file with the Super-intendent a report on each settlementagreement, setting out the nature andlocation of the damage, date, andamount of the settlement, and anyother pertinent information.

[39 FR 22254, June 21, 1974, as amended at 41FR 50649, Nov. 17, 1976. Redesignated at 47 FR13327, Mar. 30, 1982, as amended at 55 FR33115, Aug. 14, 1990; 64 FR 13896, Mar. 23, 1999]


§ 226.22 Prohibition of pollution.

(a) All operators, contractors,drillers, service companies, pipe pull-ing and salvaging contractors, or otherpersons, shall at all times conducttheir operations and drill, equip, oper-ate, produce, plug and abandon allwells drilled for oil or gas, service wellsor exploratory wells (including seismic,core and stratigraphic holes) in a man-ner that will prevent pollution and themigration of oil, gas, salt water orother substance from one stratum intoanother, including any fresh waterbearing formation.

(b) Pits for drilling mud or delete-rious substance used in the drilling,completion, recompletion, or workoverof any well shall be constructed andmaintained to prevent pollution of sur-face and subsurface fresh water. Thesepits shall be enclosed with a fence of atleast four strands of barbed wire, or anapproved substitute, stretched taut toadequately braced corner posts, unlessthe surface owner, user, or the Super-intendent gives consent to the con-trary. Immediately after completion ofoperations, pits shall be emptied andleveled unless otherwise requested bysurface owner or user.

(c) Drilling pits shall be adequate tocontain mud and other material ex-tracted from wells and shall have ade-quate storage to maintain a supply ofmud for use in emergencies.

(d) No earthen pit, except those usedin the drilling, completion, recomple-tion or workover of a well, shall beconstructed, enlarged, reconstructed orused without approval of the Super-intendent. Unlined earthen pits shallnot be used for the continued storageof salt water or other deleterious sub-stances.

(e) Deleterious fluids other than freshwater drilling fluids used in drilling orworkover operations, which are dis-placed or produced in well completionor stimulation procedures, includingbut not limited to fracturing,acidizing, swabbing, and drill stemtests, shall be collected into a pit linedwith plastic of at least 30 mil or ametal tank and maintained separately

§ 226.25

from above-mentioned drilling fluids toallow for separate disposal.


§ 226.23 Easements for wells off leased

premises.

The Superintendent, with the con-sent of the Osage Tribal Council, maygrant commercial and noncommercialeasements for wells off the leasedpremises to be used for purposes associ-ated with oil and gas production. Rent-al payable to the Osage Tribe for sucheasements shall be an amount agreedto by Grantee and the Osage TribalCouncil subject to the approval of theSuperintendent. Grantee shall be re-sponsible for all damages resultingfrom the use of such wells and settle-ment therefor shall be made as pro-vided in §226.21.


§226.24 Lessee's use of water.

Lessee or his contractor may, withthe approval of the Superintendent, usewater from streams and natural watercourses to the extent that same doesnot diminish the supply below the re-quirements of the surface owner fromwhose land the water is taken. Simi-larly, Lessee or his contractor may usewater from reservoirs formed by theimpoundment of water from suchstreams and natural water courses,provided such use does not exceed thequantity to which they originallywould have been entitled had the res-ervoirs not been constructed. Lessee orhis contractor may install necessarylines and other equipment within theOsage Mineral Estate to obtain suchwater. Any damage resulting from suchinstallation shall be settled as providedin § 226.21.

§ 226.25 Gas well drilled by oil lessees

and vice versa.Prior to drilling, the oil or gas lessee

shall notify the other lessees of his/herintent to drill. When an oil lessee indrilling a well encounters a formationor zone having indications of possiblegas production, or the gas lessee indrilling a well encounters a formation

§ 226.26

or zone having indication of possibleoil production, he/she shall imme-diately notify the other lessee and theSuperintendent. Lessee drilling thewell shall obtain all information whicha prudent operator utilizes to evaluatethe productive capability of such for-mation or zone.

(a) Gas well to be turned over to gas les-see. If the oil lessee drills a gas well, he/she shall, without removing from thewell any of the casing or other equip-ment, immediately shut the well in andnotify the gas lessee and the Super-intendent. If the gas lessee does not,within 45 days after receiving noticeand cost of drilling, elect to take oversueh well and reimburse the oil lesseethe cost of drilling, including all dam-ages paid and the cost in-place of cas-ing, tubing, and other equipment, theoil lessee shall immediately confinethe gas to the original stratum. Thedisposition of such well and the produc-tion therefrom shall then be subject tothe approval of the Superintendent. Inthe event the oil lessee and gas lesseecannot agree on the cost of the well,such cost shall be apportioned betweenthe oil and gas lessee by the Super-intendent. If such apportionment is notaccepted, the well shall be plugged bythe oil and gas lessee who drilled thewell.

(b) Oil well to be turned over to oillessee. If the gas lessee drills an oilwell, he/she must immediately, withoutremoving from the well any of the cas-ing or other equipment, notify the oillessee and the superintendent.

(1) If the oil lessee does not, within 45days after receipt of notice and cost ofdrilling, elect to take over the well, he/she must immediately notify the gaslessee. From that point, the super-intendent must approve the dispositionof the well, and any gas produced fromit.

(2) If the oil lessee chooses to takeover the well, he/she must pay to thegas lessee:

(i) The cost of drilling the well, in-cluding all damages paid; and

(ii) The cost in place of casing andother equipment.

(3) If the oil lessee and the gas lesseecannot agree on the cost of the well,the superintendent will apportion thecost between the oil and gas lessees. If


the lessees do not accept the apportion-ment, the oil or gas lessee who drilledthe well must plug the well.

(c) Lands not leased. If the gas lesseeshall drill an oil well upon lands notleased for oil purposes or vice versa,the Superintendent may, until suchtime as said lands are leased, permitthe lessee who drilled the well to oper-ate and market the production there-from. When said lands are leased, thelessee who drilled and completed thewell shall be reimbursed by the oil orgas lessee, for the cost of drilling saidwell, including all damages paid andthe cost in-place of casing, tubing, andother equipment. If the lessee does notelect to take over said well as providedabove, the disposition of such well andthe production therefrom shall be de-termined by the Superintendent. In theevent the oil lessee and gas lessee can-not agree on the cost of the well, suchcost shall be apportioned between theoil and gas lessee by the Super-intendent. If such apportionment is notaccepted, the well shall be plugged bythe oil and gas lessee who drilled thewell.

[39 FR 22254, June 21, 1974. Redesignated at 47FR 13327, Mar. 30, 1982, as amended at 55 FR33115, Aug. 14, 1990; 64 FR 13896, Mar. 23, 1999]

§ 226.26 Determining cost of well.

The term "cost of drilling" as appliedwhere one lessee takes over a welldrilled by another, shall include allreasonable, usual, necessary, and prop-er expenditures. A list of expenses men-tioned in this section shall be pre-sented to proposed purchasing lesseewithin 10 days after the completion ofthe well. In the event of a disagree-ment between the parties as to thecharges assessed against the well thatis to be taken over, such charges shallbe determined by the Superintendent.

§226.27 Gas for operating purposesand tribal use.

(a) Gas to be furnished oil lessee. Les-see of a producing gas lease shall fur-nish the oil lessee sufficient gas for op-erating purposes at a rate to be agreedupon, or on failure to agree the rateshall be determined by the Super-intendent: Provided, That the oil lessee


shall at his own expense and risk, fur-nish and install the necessary connec-tions to the gas lessee's well or pipe-line. All such connections shall be re-ported in writing to the Super-intendent.

(b) Use of gas by Osage Tribe. (1) Gasfrom any well or wells shall be fur-nished any Tribal-owned building orenterprise at a rate not to exceed theprice less royalty being received or of-fered by a gas purchaser: Provided,That such requirement shall be subjectto the determination by the Super-intendent that gas in sufficient quan-tities is available above that needed forlease operation and that no wastewould result. In the absence of a gaspurchaser the rate to be paid by theOsage Tribe shall be determined by theSuperintendent based on prices beingpaid by purchasers in the Osage Min-eral Estate. The Osage Tribe is to fur-nish all necessary material and laborfor such connection with Lessee's gassystem. The use of such gas shall be atthe risk of the Osage Tribe at all times.

(2) Any member of the Osage Triberesiding in Osage County and outside acorporate city is entitled to the use athis own expense of not to exceed 400,000cubic feet of gas per calendar year forhis principal residence at a rate not toexceed the amount paid by a gas pur-chaser plus 10 percent: Provided, Thatsuch requirement shall be subject tothe determination by the Super-intendent that gas in sufficient quan-tities is available above that needed forlease operation and that no wastewould result. In the absence of a gaspurchaser the amount to be paid by theTribal member shall be determined bythe Superintendent. Gas to Tribalmembers is not royalty free. The Trib-al member is to furnish all necessarymaterial and labor for such connectionto Lessee's gas system, and shall main-tain his own lines. The use of such gasshall be at the risk of the Tribal mem-ber at all times.

(3) Gas furnished by Lessee underparagraphs (b) (1) and (2) of this sectionmay be terminated only with the ap-proval of the Superintendent. Writtenapplication for termination must bemade to the Superintendent showingjustification.

§ 226.29

CESSATION OF OPERATIONS

§ 226.28 Shutdown, abandonment, andplugging of wells.

No productive well shall be aban-doned until its lack for further profit-able production of oil and/or gas hasbeen demonstrated to the satisfactionof the Superintendent. Lessee shall notshut down, abandon, or otherwise dis-continue the operation or use of anywell for any purpose without the writ-ten approval of the Superintendent. Allapplications for such approval shall besubmitted to the Superintendent onforms furnished by him/her.

(a) Application for authority to per-manently shut down or discontinue useor operation of a well shall set forthjustification, probable duration themeans by which the well bore is to beprotected, and the contemplated even-tual disposition of the well. The meth-od of conditioning such well shall besubject to the approval of the Super-intendent.

(b) Prior to permanent abandonmentof any well, the oil lessee or the gaslessee, as the case may be, shall offerthe well to the other for his recomple-tion or use under such terms as may bemutually agreed upon but not in con-flict with the regulations. Failure ofthe Lessee receiving the offer to replywithin 10 days after receipt thereofshall be deemed as rejection of theoffer. If, after indicating acceptance,the two parties cannot agree on theterms of the offer within 30 days, thedisposition of such well shall be deter-mined by the Superintendent.

(c) The Superintendent is authorizedto shut in a lease when the lessee failsto comply with the terms of the lease,the regulations, and/or orders of theSuperintendent.


§226.29 Disposition of casings and

other improvements.(a) Upon termination of lease, perma-

nent improvements, unless otherwiseprovided by written agreement withthe surface owner and filed with theSuperintendent, shall remain a part ofsaid land and become the property ofthe surface owner upon termination of

§ 226.30

the lease, other than by cancellation.Exceptions include personal propertynot limited to tools, tanks, pipelines,pumping and drilling equipment, der-ricks, engines, machinery, tubing, andthe casings of all wells: Provided, Thatwhen any lease terminates, all suchpersonal property shall be removed theword "terminates"; and in the last sen-tence of the paragraph, within 90 daysor such reasonable extension of time asmay be granted by the Superintendent.Otherwise, the ownership of all casingsshall revert to Lessor and all other per-sonal property and permanent improve-ments to the surface owner. Nothingherein shall be construed to relieve les-see of responsibility for removing anysuch personal property or permanentimprovements from the premises if re-quired by the Superintendent and re-storing the premises as nearly as prac-ticable to the original state.

(b) Upon cancellation of lease. Whenthere has been a cancellation for cause,Lessor shall be entitled and authorizedto take immediate possession of thelease premises and all permanent im-provements and all other equipmentnecessary for the operation of thelease.

(c) Wells to be abandoned shall bepromptly plugged as prescribed by theSuperintendent. Applications to plugshall include a statement affirmingcompliance with §226.28(b) and shall setforth reasons for plugging, a detailedstatement of the proposed work includ-ing kind, location, and length of plugs(by depth), plans for mudding and ce-menting, testing, parting and removingcasing, and any other pertinent infor-mation: Provided, That the Super-intendent may give oral permissionand instructions pending receipt of awritten application to plug a newlydrilled hole. Lessee shall remit a fee of$15 with each written application forauthority to plug a well. This fee willbe refunded if permission is not grant-ed.

(d) Lessee shall plug and fill all dryor abandoned wells in a manner to con-fine the fluid in each formation bearingfresh water, oil, gas, salt water, andother minerals, and to protect itagainst invasion of fluids from othersources. Mud-laden fluid, cement, andother plugs shall be used to fill the


hole from bottom to top: Provided,That if a satisfactory agreement isreached between Lessee and the surfaceowner, subject to the approval of theSuperintendent, Lessee may conditionthe well for use as a fresh water welland shall so indicate on the pluggingrecord. The manner in which pluggingmaterial shall be introduced and thetype of material so used shall be sub-ject to the approval of the Super-intendent. Within 10 days after plug-ging, Lessee shall file with the Super-intendent a complete report of theplugging of each well. When any well isplugged and abandoned, Lessee shall,within 90 days, clean up the premisesaround sueh well to the satisfaetion ofthe Superintendent.


REQUIREMENTS OF LESSEES

§ 226.30 Lessees subject to Super-intendent's orders; books andrecords open to inspection.

Lessee shall comply with all ordersor instructions issued by the Super-intendent. The Superintendent or hisrepresentative may enter upon theleased premises for the purpose of in-spection. Lessee shall keep a full andcorrect account of all operations, re-ceipts, and disbursements and make re-ports thereof, as required. Lessee'sbooks and records shall be available tothe Superintendent for inspection.

§226.31 Lessee's process agents.

(a) Before actual drilling or develop-ment operations are commenced onleased lands, Lessee or Assignee, if nota resident of the State of Oklahoma,shall appoint a local or resident rep-resentative within the State of Okla-homa on whom the Superintendentmay serve notice or otherwise commu-nicate in securing compliance with theregulations in this part, and shall no-tify the Superintendent of the nameand post office address of the rep-resentative appointed.

(b) Where several parties own a leasejointly, one representative or agentshall be designated whose duties shallbe to act for all parties concerned. Des-ignation of such representative should


be made by the party in charge of oper-ations.

(c) In the event of the incapacity orabsence from the State of Oklahoma ofsuch designated local or resident rep-resentative, Lessee shall appoint a sub-stitute to serve in his stead. In the ab-sence of such representative or ap-pointed substitute, any employee ofLessee upon the leased premises or per-son in charge of drilling or related op-erations thereon shall be consideredthe representative of Lessee for thepurpose of service of orders or noticesas herein provided.

§ 226.32 Well records and reports.

(a) Lessee shall keep accurate andcomplete records of the drilling, re-drilling, deepening, repairing, treating,plugging, or abandonment of all wells.These records shall show all the forma-tions penetrated, the content and char-acter of oil, gas, or water in each for-mation, and the kind, weight, size,landed depth and cement record of cas-ing used in drilling each well; therecord of drill-stem and other bottomhole pressure or fluid sample surveys,temperature surveys, directional sur-veys, and the like; the materials andprocedure used in the treating or plug-ging of wells or in preparing them fortemporary abandonment; and anyother information obtained in thecourse of well operation.

(b) Lessee shall take such samplesand make such tests and surveys asmay be required by the Superintendentto determine conditions in the well orproducing reservoir and to obtain in-formation concerning formationsdrilled, and shall furnish reports there-of as required by the Superintendent.

(c) Within 10 days after completion ofoperations on any well, Lessee shalltransmit to the Superintendent the ap-plicable information on forms fur-nished by the Superintendent; a copyof electrical, mechanical or radioactivelog, or other types of survey of the wellbore; and core analysis obtained fromthe well. Lessee shall also submit otherreports and records of operations asmay be required and in the manner andform prescribed by the Superintendent.

(d) Lessee shall measure productionof oil, gas, and water from individualwells at reasonably frequent intervals

§ 226.36

to the satisfaction of the Super-intendent.

(e) Upon request and in the mannerand form prescribed by the Super-intendent, Lessee shall furnish a platshowing the location, designation, andstatus of all wells on the leased lands,together with such other pertinent in-formation as the Superintendent mayrequire.

§ 226.33 Line drilling.

Lessee shall not drill within 300 feetof boundary line of leased lands, nor lo-cate any well or tank within 200 feet ofany public highway, any establishedwatering plaee, or any building used asa dwelling, granary, or barn, exceptwith the written permission of the Su-perintendent. Failure to obtain ad-vance written permission from the Su-perintendent shall subject lessee tocancellation of his/her lease and/orplugging of the well.


§226.34 Wells and tank batteries to bemarked.

Lessee shall clearly and permanentlymark all wells and tank batteries in aconspicuous place with number, legaldescription, operator, and telephonenumber, and shall take all necessaryprecautions to preserve these mark-ings.

[55 FR 33116, Aug. 14, 1990]

§ 226.35 Formations to be protected.

Lessee shall, to the satisfaction ofthe Superintendent, take all properprecautions and measures to preventdamage or pollution of oil, gas, freshwater, or other mineral bearing forma-tions.

§226.36 Control devices.

In drilling operations in fields wherehigh pressures, lost circulation, orother conditions exist which could re-sult in blowouts, lessee shall install anapproved gate valve or other control-ling device which is in proper working

§ 226.37

condition for use until the well is com-pleted. At all times preventative meas-ures must be taken in all well oper-ations to maintain proper control ofsubsurface strata.

[55 FR 33116, Aug. 14, 1990]

§ 226.37 Waste of oil and gas.

Lessee shall conduct all operations ina manner that will prevent waste of oiland gas and shall not wastefully utilizeoil or gas. The Superintendent shallhave the authority to impose such re-quirements as he deems necessary toprevent waste of oil and gas and to pro-mote the greatest ultimate recovery ofoil and gas. Waste as applied herein in-cludes, but is not limited to, the ineffi-cient excessive or improper use or dis-sipation of reservoir energy whichwould reasonably reduce or diminishthe quantity of oil or gas that mightultimately be produced, or the unnec-essary or excessive surface loss or de-struction, without beneficial use, of oiland/or gas.

§ 226.38 Measuring and storing oil.

All production run from the leaseshall be measured according to meth-ods and devices approved by the Super-intendent. Facilities suitable for con-taining and measuring accurately allcrude oil produced from the wells shallbe provided by Lessee and shall be lo-cated on the leasehold unless otherwiseapproved by the Superintendent. Les-see shall furnish to the Superintendenta copy of 100-percent capacity tanktable for each tank. Meters and instal-lations for measuring oil must be ap-proved, and tests of their accuracyshall be made when directed by the Su-perintendent.

§ 226.39 Measurement of gas.

All gas, required to be measured,shall be measured by meter (preferablyof the orifice meter type) unless other-wise agreed to by the Superintendent.All gas meters must be approved by theSuperintendent and installed at the ex-pense of Lessee or purchaser at suchplaces as may be agreed to by the Su-perintendent. For computing the vol-ume of all gas produced, sold or subjectto royalty, the standard of pressureshall be 14.65 pounds to the square inch,


and the standard of temperature shallbe 60 degrees F. All measurements ofgas shall be adjusted by computationto these standards, regardless of thepressure and temperature at which thegas was acutally measured, unless oth-erwise authorized in writing by the Su-perintendent.

§ 226.40 Use of gas for lifting oil.

Lessee shall not use natural gas froma distinct or separate stratum for thepurpose of flowing or lifting the oil, ex-cept where said Lessee has an approvedright to both the oil and the gas, andthen only with the approval of the Su-perintendent of such use and of themanner of its use.

§ 226.41 Accidents to be reported.

Lessee shall make a complete reportto the Superintendent of all accidents,fires, or acts of theft and vandalism oc-curring on the leased premises.

PENALTIES

§226.42 Penalty for violation of leaseterms.

Violation of any of the terms or con-ditions of any lease or of the regula-tions in this part shall subject thelease to cancellation by the Super-intendent, or Lessee to a fine of notmore than $500 per day for each day ofsuch violation or noncompliance withthe orders of the Superintendent, or toboth such fine and cancellation. Finesnot received within 10 days after noticeof the decision shall be subject to latecharges at the rate of not less than 112percent per month for each month orfraction thereof until paid. The OsageTribal Council, subject to the approvalof the Superintendent, may waive thelate charge.


§ 226.43 Penalties for violation of cer-

tain operating regulations.In lieu of the penalties provided

under §226.42, penalties may be im-posed by the Superintendent for viola-tion of certain sections of the regula-tions of this part as follows:

(a) For failure to obtain permissionto start operations required by


§226.16(b), $50 per day until permissionis obtained.

(b) For failure to file records requiredby § 226.32, $50 per day until complianceis met.

(c) For failure to mark wells andtank batteries as required by §226.34,$50 for each well and tank battery.

(d) For failure to construct and main-tain pits as required by §226.22, $50 foreach day after operations are com-menced on any well until compliance ismet.

(e) For failure to comply with §226.36regarding valve or other approved con-trolling device, $100.

(f) For failure to notify Super-intendent before drilling, redrilling,deepening, plugging, or abandoning anywell, as required by §§226.16(c) and226.25, $200.

(g) For failure to properly care forand dispose of deleterious fluids as pro-vided in § 226.22, $500 per day until com-pliance is met.

(h) For failure to file plugging re-ports as required by §226.29 and for fail-ure to file reports as required by§226.13, $50 per day for each violationuntil compliance is met.

(i) For failure to perform or start anoperation within 5 days after orderedby the Superintendent in writing underauthority provided in this part, if saidoperation is thereafter performed by orthrough the Superintendent, the actualcost of performance thereof, plus 25percent.

(j) Lessee or his/her authorized rep-resentative is hereby notified thatcriminal procedures are provided by 18U.S.C. 1001 for knowingly filing fraudu-lent reports and information.


APPEALS AND NOTICES

§ 226.44 Appeals.

Any person, firm or corporation ag-grieved by any decision or order issuedby or under the authority of the Super-intendent, by virtue of the regulationsin this part, may appeal pursuant to 25CFR part 2.

[55 FR 33116, Aug. 14, 1990]

Pt. 227

§ 226.45 Notices.

Notices and orders issued by the Su-perintendent to the representative and/or operator shall be binding on the les-see. The Superintendent may in his/herdiscretion increase the time allowed inhis/her orders and notices.

[55 FR 33116, Aug. 14, 1990]

§226.46 Information collection.

The Office of Management and Budg-et has determined that the informationcollection requirements contained inthis part need not be submitted forclearance pursuant to 44 U.S.C. 3501 etseq.

[55 FR 33116, Aug. 14, 1990]

PART 227-LEASING OF CERTAINLANDS IN WIND RIVER INDIANRESERVATION, WYOMING, FOROIL AND GAS MINING

Sec.227.1 Definitions.

How To ACQUIRE LEASES

227.2 Applications for leases.227.3 Leases to citizens of the United States

except Government employees.227.4 Sale of oil and gas leases.227.5 Terms of leases, procedure for renewal

and execution.227.6 Corporations and corporate informa-

tion.227.7 Additional information from appli-

cant.227.8 Bonds.227.9 Acreage limitation: Leases on non-

contiguous tracts.227.10 Minerals other than oil and gas.227.11 Bureau of Land Management to be

furnished copy of lease.227.12 Mineral reserves in nonmineral en-

tries.227.13 Vested rights to be respected.227.14 Government reserves right to pur-

chase oil and gas.

RENTS AND ROYALTIES

227.15227.16227.17227.18227.19

227.20227.21227.22227.23

Manner of payment.Crediting advance annual payments.Rates of rents and royalties.Free use of gas by lessor.Division orders.

OPERATIONS

Permission to start operations.Restrictions on operations.Diligence and prevention of waste.Wells.

Osage Final Rule—80 Fed. Reg. 26994 (May 11, 2015)

(remanded)

FEDERAL REGISTERVol. 80 Monday,

No. 90 May 11, 2015

Part II

Department of the InteriorBureau of Indian Affairs25 CFR Part 226Leasing of Osage Reservation Lands for Oil and Gas Mining; Final Rule

Federal Register/Vol. 80, No. 90/Monday, May 11, 2015/Rules and Regulations

DEPARTMENT OF THE INTERIOR

Bureau of Indian Affairs

25 CFR Part 226

[1 56A21 00DD/AAKC001 030/AOA501010.999900 253G]

RIN 1076-AF17

Leasing of Osage Reservation Landsfor Oil and Gas Mining

AGENCY: Bureau of Indian Affairs,Interior.ACTION: Final rule.

SUMMARY: The Bureau of Indian Affairsis issuing its final revisions to theregulations addressing mineraldevelopment of the Osage mineralsestate. This rule updates the leasingprocedures and the rental, operations,safety and royalty requirements for oiland gas production on Osage minerallands and is the result of a negotiatedrulemaking.

DATES: This rule is effective on July 10,2015.FOR FURTHER INFORMATION CONTACT: Mr.Eddie Streater, Designated FederalOfficer, Bureau of Indian Affairs, P.O.Box 8002, Muscogee, OK 74402;telephone (918) 781-4608; fax (918)718-4604; or email [email protected]. Additional information on thenegotiated rulemaking can be found at:http://www.bia.gov/osageregneg.SUPPLEMENTARY INFORMATION:

I. Executive Summary of RuleII. BackgroundIII. Detailed Explanation of RevisionsIV. Explanation of Changes Made in

Response to Departmental ReviewV. Comments on the Proposed Rule and

ResponsesA. Overview/GeneralB. Comments Related to Section 226.1C. Comments Related to Section 226.3D. Comments Related to Section 226.4E. Comments Related to Section 226.5F. Comments Related to Section 226.6G. Comments Related to Section 226.8H. Comments Related to Section 226.9I. Comments Related to Section 226.14J. Comments Related to Section 226.15K. Comments Related to Section 226.18L. Comments Related to Section 226.19M. Comments Related to Section 226.20N. Comments Related to Section 226.25G. Comments Related to Section 226.27P. Comments Related to Section 226.29

Q. Comments Related to Section 226.33R. Comments Related to Section 226.34S. Comments Related to Section 226.35T. Comments Related to Section 226.36U. Comments Related to Section 226.37V. Comments Related to Section 226.38W. Comments Related to Section 226.39X. Comments Related to Section 226.40Y. Comments Related to Section 226.41Z. Comments Related to Section 226.45AA. Comments Related to Section 226.46BB. Comments Related to Section 226.47CC. Comments Related to Section 226.48DD. Comments Related to Section 225.53EE. Comments Related to Section 226.56FF. Comments Related to Section 226.57GG. Comments Related to Section 226.59HH. Comments Related to Section 226.60II. Comments Related to Section 226.62JJ. Comments Related to Section 226.63KK. Comments Related to Section 226.65LL. Comments Related to Section 226.66MM. Subpart F (226.67 to 226.70)NN. Abandoned Wells

V. Procedural RequirementsA. Regulatory Planning and Review (E.O.

12866 and 13563)B. Regulatory Flexibility ActC. Small Business Regulatory Enforcement

Fairness ActD. Unfunded Mandates Reform ActE. Takings (E.O. 12630)F. Federalism (E.O. 13132)G. Civil Justice Reform (E.O. 12988)H. Consultation with Indian Tribes (E.O.

13175)I. Paperwork Reduction ActJ. National Environmental Policy ActK. Effects on the Energy Supply (E.O.

13211)

I. Executive Summary of Rule

This rule updates the existing oil andgas regulations governing Osage County,Oklahoma as set forth in 25 CFR part226. It is intended to strengthen themanagement and administration of theOsage mineral estate for the benefit ofthe Osage. These provisions strengthenthe rule's reporting and inspectionrequirements, offer more specificityregarding a lessee's obligations withrespect to its mining operations, andadjust royalty rate calculations andbonding amounts, in order to protect thebest interests of the Osage mineralestate, ensure safety, and discouragefuture regulatory violations.

II. Background

On October 14, 2011, the UnitedStates and the Osage Nation (formerlyknown and referred to in Rule 226 asthe "Osage Tribe") signed a SettlementAgreement to resolve litigation

regarding the United States' allegedmismanagement of the Osage Nation'soil and gas mineral estate, along withother unrelated claims. In theSettlement Agreement, the partiesagreed "to address means of improvingthe trust management of the OsageMineral Estate, the Osage Tribal TrustAccount, and Other Osage Accounts."The parties agreed that a review andrevision of the existing regulations iswarranted to better assist the Bureau ofIndian Affairs (BIA or Bureau) inmanaging the Osage mineral estate. Theparties agreed to engage in a negotiatedrulemaking for this purpose. Pursuant tothe required, applicable procedures,after the Tribal Trust Settlement wasexecuted, the Department of the Interior(Department) established a NegotiatedRule Making Committee in July 2012and commenced structured negotiationson the amendment and revision of Rule226. For additional information on thisnegotiated rulemaking process, pleasevisit http://www.bia.gov/osageregneg/.

The Negotiated Rule MakingCommittee submitted its report to BIAon April 25, 2013. On August 28, 2013,BIA published a proposed rule based onthe Committee's report. See 78 FR53083. In order to provide additionaltime for parties to comment on theproposed rule, BIA extended theoriginal comment deadline untilNovember 18, 2013. See 78 FR 68859(November 1, 2013). After a thoroughevaluation of the many comments byvarious stakeholders with respect to theproposed rule, BIA revised andamended the proposed rule toincorporate those changes andamendments that BIA consideredmeritorious and beneficial in preparingthe final rule as published herein.

III. Detailed Explanation of Revisions

This final rule revises the existingrule for "Leasing of Osage ReservationLands for Oil and Gas Mining" with thetextual and substantive changes as setforth in Table 1. The BIA's additionalrevisions to the proposed rule thatresulted from the comment period andBIA's consideration and evaluation ofthose comments (as set forth in SectionIV below) were adopted in BIA's finalrule as published herein and as set forthin Table 2.

26994


TABLE 1

Current 25 CFR section Final rule section Final rule change

Part 226 ......................... Part 226 ......................

2 2 6 .1 ............................. I 2 2 6 .1 ...........................

N /A ................................226.2 (New) ................

N/A ................................ 226.3 (New) ................

N /A ................................226.4 (New) ................

2 2 6 .2 ............................. 1 2 2 6 .5 ...........................

2 2 6 .3 ............................. 2 2 6 .6 ...........................

2 2 6 .4 ............................. 2 2 6 .7 ...........................

2 2 6 .5 .............................2 2 6 .6 .............................

2 2 6 .8 ...........................2 2 6 .9 ...........................

226.6(d) ......................... 226.10 .........................

N/A ................................ 226.11 (New) ..............

2 2 6 .7 .............................2 2 6 .8 .............................2 2 6 .9 .............................

N /A ................................

226.12 .........................226.13 .........................226.14 .........................

226.15 (New) ..............

N/A ................................ 226.16 (New) ..............

2 2 6 .10 ...........................2 2 6 .1 1 ...........................

226.11(a) .......................

226.17 .........................(See below) ................

226.18 .........................

N/A ............................... 226.19 (new) ...............226.11(b) ....................... 226.20 .........................

N /A ................................

Throughout the final rule the use of "Osage Tribal Council" has been deleted and replacedwith "Osage Minerals Council" ("OMC") because the former no longer exists and the lat-ter holds the authority to make decisions regarding the Osage minerals estate. Similarly,all references to "lease cancellation" in the existing rule have been changed to "lease ter-mination," unless the reference in the final rule is to a voluntary lease cancellation by alessee. Also, to clarify time deadlines, all references to due dates are to be uniformly cal-culated by calendar days, unless specifically noted otherwise. In addition, the final ruleadds the term "other marketable product" to existing references to oil and gas in orderthat other minerals will not leave a gap and resulting in unregulated minerals.

The final rule deletes the terms "contract" and "agreement" and substitutes the term"lease"; provides definition for a "lease;" clarifies that "an authorized representative of alessee" is bound by those regulations that apply to the lessee represented; deletes thedefinition for "major purchaser" because it is no longer relevant; replaces and combinesthe definitions for "casinghead gas" and "natural gas" into one definition for "raw naturalgas" and "gas"; adds definitions for the additional following new terms: "avoidably lost,""condensate," "drainage," "marketable condition," "maximum ultimate economic recov-ery," "natural gas liquids," "notice to lessee," "onshore oil and gas order," "other market-able product," "production in paying quantities," "surface owner," and "waste of oil andgas or other marketable product".

The final rule sets forth sources of governing requirements for activities in Osage County re-lated to oil and gas and the development of "other marketable products".

The final rule sets forth the authority of Bureau of Indian Affairs ("BIA") to issue certain no-tices and orders after consultation with the OMC.

The final rule enumerates the responsibilities and authority of the Superintendent with re-spect to management and administration of the Osage mineral estate.

The final rule breaks the prior regulation into subparts and removes references to oil andgas in paragraphs (b) and (d), extends the time for a successful bidder to deposit his/herpayment, requires that payment be made in a specified form other than cash; increasesthe filing fee for submitting a completed lease form; enumerates the circumstances inwhich a portion of the bonus bid will be forfeited; requires that the Superintendent postlegal descriptions within 30 days of a lease sale; and authorizes the OMC to request com-parable lease sales data from the Superintendent.

The final rule increases the filing fee, adds requirements regarding lessee's responsibility forplugging and abandoning wells upon surrender, and deletes the reference to allowing sur-render of separate horizons.

The final rule amends the provision to allow the Superintendent to specify the manner andmethod of payments due under a lease or regulation.

No substantive change from current rule.The final rule sets forth each bonding requirement in its own paragraph to improve read-

ability, it adds personal bonds to surety bonds as acceptable bonding methods, it setsforth the requirements for personal and surety bonds and changes the bonding amountfrom a per lease-area bond to a $5,000 per well bond for up to 25 wells. The final rulealso adds back in nationwide bonding, which was not in the proposed rule.

The final rule moves the provision allowing the Superintendent to increase the amount of arequired bond to its own section and amends the previous provision under which the Su-perintendent can increase the amount of a bond.

The final rule sets forth the circumstances under which the Superintendent must release abond.

No substantive change from current rule.No substantive change from current rule.The final rule sets forth each current requirement in its own paragraph to improve read-

ability. It also increases rental rates, clarifies the lessee's responsibility for diligent devel-opment, adds a new provision allowing the Osage Minerals Council to request a deter-mination as to the diligent development of a lease and new procedures for the automatictermination of a lease for failure to diligently develop.

The final rule sets forth lessee's new obligations to protect land from drainage of its oil orgas content by wells outside the lease

The final rule specifies the Superintendent's new remedies for requiring protective actiononce drainage has occurred.

No substantive change from current rule.The final rule divides the current section on royalties into several new sections to improve

readability, as shown below.The final rule clarifies that royalty may be taken in-kind. It also amends the royalty rate cal-

culation for oil, subject to a price adjustment for gravity.The final rule sets forth how the gravity adjustment is calculated.The final rule amends the royalty rate calculation for gas and specifies how gross proceeds

are calculated; allows the Superintendent to direct that gross proceeds be calculated in analternative manner where reasonable cost of processing cannot be obtained; and adds aminimum royalty provision.

The final rule provides that royalty must be paid for any oil and gas avoidably lost and al-lows the Superintendent to determine the volume and quality of the lost oil and gas.

26995

226.21 (new) ...............


TABLE 1-Continued


226.11 (c) .......................

226.11 (e) .......................

226.12 ...........................

226.13(a) .......................

226.13(b), (c) .................

226.14 ...........................

226.15 ...........................

226.22 .........................

226.23 (New) ..............

226.24 .........................

226.25 .........................

226.26 .........................

226.27 .........................

(See below) ................

226.15(a) ....................... 226.28 .........................226.15(b) ....................... 226.29 .........................

226.15(c) .......................226.15(d) .......................226.15(e) .......................N /A ................................2 2 6 .16 ...........................

2 2 6 .17 ...........................2 2 6 .18 ...........................

226.19(a) .......................

226.19(b), (c) .................

226.19(d) .......................

226.20 ...........................2 2 6 .2 1 ...........................N /A ................................

N /A ................................

226.22 ...........................

N /A ................................

226.30 .........................226.31 .........................226.32 .........................226.33 (New) ..............226.34 .........................

226.35 .........................226.36 .........................

226.37 .........................

226.38 .........................

226.39 .........................

226.40 .........................226.41 .........................226.42 (New) ..............

226.43 (New) ..............

226.44 .........................

226.45 (New) ..............

N/A ................................1 226.46 (New) ..............

226.23 ...........................226.47 .........................

226.24 ........................... 226.48 .........................226.25 ........................... 226.49 .........................

226.26 ........................... 226.50 .........................226.27 ........................... 226.51 .........................

The final rule amends the date for payment of royalties and adds provision for adjusting theminimum royalty.

The final rule sets forth the minimum royalty due for "other marketable products" and clari-fies that it is in addition to any royalty that may be due on oil or gas.

The final rule amends the reference to royalty payment to ensure that the federal govern-ment purchases oil consistent with the new requirements.

The final rule requires lessees to provide a written agreement when purchaser is the partyresponsible for payment; provides procedure for making royalty payments and late pay-ments; describes how royalty payments are made; and deletes the provision allowing theOsage Minerals Council to waive late charges with approval of the Superintendent.

The final rule sets forth those reports that lessees must submit to the Superintendent andfurther specifies the format and content of those reports. The final rule also adds a re-quirement that the Osage Minerals Council be copied on all such reports, as well as es-tablishing the date that the monthly reports are due.

The final rule sets forth each current requirement for division orders in its own paragraph toimprove readability. It also extends the due date in paragraph (b) for submitting the report-ing statement for oil and gas sold should the due date fall on a weekend or holiday.

The final rule divides the current section on lease unitizations and assignments into severalnew sections to improve readability, as shown below.

No substantive change from current rule.The final rule sets forth each current requirement in its own paragraph to improve read-

ability. It also adds provisions relating to the responsibilities and liabilities of assignors andassignees and deletes the provisions that allowed for the assignment of separate leasehorizons.

No substantive change from current rule.No substantive change from current rule.No substantive change from current rule.Sets forth the general requirements governing leasing operations.The final rule sets forth each current requirement in its own paragraph to improve readability

and adds specific reference to the existing requirement that the Superintendent complywith the National Environmental Policy Act and the National Historic Preservation Actwhere applicable.

No substantive change from current rule.The final rule reformats this section to improve readability. It also adds requirements for no-

tice to surface owners before lessees conduct certain activities and eliminates any dif-ference in notice based on the surface owner's residence status as within or outsideOsage County.

The final rule sets forth in its own paragraph each current aspect of a lessee's rights and re-sponsibilities in using the surface of the land to improve readability. It also adds a provi-sion requiring notification to the lessee and surface owner before the Superintendent setsthe routing of pipelines, electric lines, etc.

The final rule sets forth each current requirement with respect to commencement moneyinto its own paragraph to improve readability. It also increases the amount of commence-ment money the lessee must pay the surface owner.

The final rule increases per tank siting fees and provides for arbitration to determine fees tobe paid for tanks occupying more than 2500 sq. feet if the parties are unable to agree.

No substantive change from current rule.No substantive change from current rule.The final rule sets forth additional obligations with respect to lessee's obligation for produc-

tion and marketability.The final rule requires documentation for transportation of oil, gas or other marketable prod-

uct to enable the Superintendent to inspect and confirm proper transportation.The final rule sets forth each current requirement in its own paragraph to improve its read-

ability. It also adds provisions in paragraph (e) clarifying that pits or tanks used for col-lecting deleterious fluids must have fencing and be removed and reclaimed immediatelyafter operations.

The final rule sets forth a lessee's specific environmental responsibilities and obligationswhile conducting operations.

The final rule requires certain safety standards and equipment for lessee operations, as wellas compliance with the National Electric Code.

The final rule adds a provision requiring the Superintendent to notify or attempt to notify sur-face owners before decisions are made with respect to easements of leased premises.

No substantive change from current rule.The final rule has reformatted this section on the responsibility of other types of lessees

when they are not the lessee drilling in order to improve its readability. It also deletesprior/current requirements that wells be plugged if no apportionment agreement is accept-ed, making the Superintendent's decision on apportionment final.

No substantive change from current rule.The final rule adds general requirement that gas for tribal use must be odorized and treated

to ensure public safety.

26996


TABLE 1-Continued


226.28 ........................... 226.52 .........................

226.29 ........................... 226.53 .........................

226.30 ........................... 226.54 .........................

226.31 ........................... 226.55 .........................

226.32 ...........................226.33 ...........................226.34 ...........................

226.35 ...........................226.36 ...........................

226.37 ...........................226.38 ...........................

226.39 ...........................

226.40 ...........................N /A ................................2 2 6 .4 1 ...........................

226.42 ...........................

226.43 ...........................226.44 ...........................226.45 ...........................226.46 ...........................

226.56 .........................226.57 .........................226.58 .........................

226.59 .........................226.60 .........................

2 2 6 .6 1 .........................226.62 .........................

226.63 .........................

226.64 .........................226.65 (New) ..............226.66 .........................

226.67 .........................

226.68226.69226.70226.71

The final rule provides new standards for determining whether a well may be permanentlyabandoned on a showing that it is incapable of future profitable production, as opposed tobeing capable of producing in paying quantities.

The final rule has reformatted this section to improve its readability. In paragraph (a), it alsoeliminates an exception for termination of a lease, other than for cause. In paragraph (c),it also adds a requirement that a Superintendent's orders for plugging a well must be inwriting, as well as eliminating the fee for submitting an application to plug a well.

The final rule divides paragraph (b) into two provisions, thereby adding a paragraph (c). Italso adds paragraph (d), which requires that lessees maintain records for a period of 6years, unless notified to maintain certain records for a longer period.

The final rule deletes the provision applying when several parties own a lease jointly allow-ing the designation of a representative be made by the party in charge of operations whenseveral parties own a lease jointly, to requiring that all of the parties must jointly designatethe representative.

The final rule reformats this section to improve its readability.No substantive change from current rule.The final rule adds a requirement that wells and tank batteries be marked with lessee's

name.No substantive change from current rule.The final rule adds paragraphs (b)-(f), which require safety precautions for drilling wells gen-

erally, drilling vertical wells, maintaining and controlling high pressure or loss of circulationin wells, protecting fresh water and other minerals and ensuring safety and protectionwhen hydrogen sulfide gas is present at certain levels by adopting BLM On-Shore Oil andGas Order 6.

No substantive change from current rule.The final rule adds paragraphs (b)-(d), which specify requirements for measuring, calibrating

and adjusting meters, including notice to and follow-up by the Superintendent; require no-tification to the Superintendent when an oil tank is ready for removal or for witnessinggaugings, and provide that repeated failures to comply with the new provisions subject thelessee to lease termination after consultation with the Osage Minerals Council.

The final rule adds paragraphs requiring measurement of gas to be done in accordance withBLM Onshore Oil and Gas Order 5, specify a lessee's obligations for calibrating, inspect-ing and adjusting meters, including notification and inspection by the Superintendent, andprovide that repeated failures to comply will subject the lease to termination after con-sultation with the Osage Minerals Council.

No substantive change from current rule.The final rule sets forth specific safety and other requirements to ensure proper site security.The final rule adds requirements to ensure that incidents are reported in a timely manner,

that notification is provided when environmental or other types of accidents occur, speci-fying who must be notified, including impacted surface owners.

The final rule allows lease provisions for different fines and penalties, and it deletes the pro-vision allowing the Osage Minerals Council to waive late charges.

No substantive change from current rule.No substantive change from current rule.No substantive change from current rule.The final rule adds information concerning approval of OMB and the assigned OMB Control

Number.

Table 2 below sets forth the rule to the text of the proposed rule as for each of these changes is discussed in

substantive changes made in the final published August 28, 2013. The basis the next section of this preamble.

TABLE 2

Section Final rule's change to proposed rule

2 2 6 .1 ....................................

2 2 6 .2 ....................................2 2 6 .3 ....................................

226.4(a)(4) ............................226.4(a)(10) ..........................2 2 6 .4 (b ) ................................2 2 6 .4 (c ) ................................226.5(a)(4) (ii) ......................

The final rule adds a definition for "surface owner", references "other marketable product" in the definition of"lease" and "Osage Minerals Council" and amends the definition of "waste of oil or gas or other marketableproduct."

The final rule adds a reference to other marketable products.The final rule deletes the reference in 226.3(a) to the Administrative Procedure Act and replaces it with "applica-

ble law and regulations" and also adds the phrase "where appropriate" after the reference to consultation withthe Osage Minerals Council because not all of the items listed in the provision are subject to the APA or theDepartment's Consultation Policy.

The final rule deletes reference to "other" as unnecessary.The final rule adds the phrase "unless otherwise approved by the Superintendent" at the end.The final rule removes provisions that allowed the Superintendent to issue oral orders.The final rule adds a requirement that any history of noncompliance be documented.The final rule removes the phrase "twenty five percent of the bonus bid" at the beginning of the provision and

adds a reference to paragraph 5 in subparagraph (c).

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.........................

.........................

.........................

.........................


TABLE 2-Continued

Section Final rule's change to proposed rule

2 2 6 .5 (b ) ................................226.5(d) ................................

2 2 6 .5 (f) .................................2 2 6 .6 ....................................

2 2 6 .9 ....................................

2 2 6 .1 1 ..................................2 2 6 .1 4 ..................................

2 2 6 .1 5 ..................................

2 2 6 .1 8 ..................................

2 2 6 .2 0 ..................................

2 2 6 .2 0 ..................................2 2 6 .2 5 ..................................

2 2 6 .2 7 ..................................

2 2 6 .2 9 ..................................

2 2 6 .3 4 ..................................2 2 6 .3 6 ..................................

2 2 6 .3 7 ..................................

226.40(a) ..............................

2 2 6 .4 4 ..................................2 2 6 .4 6 ..................................2 2 6 .4 7 ..................................

2 2 6 .5 2 ..................................

2 2 6 .5 3 ..................................

226.55(b) ..............................

2 2 6 .6 2 ..................................

2 2 6 .6 6 ..................................

Subpart F (226.67-68) .........

Deletes references to oil and gas as unnecessary.Language added to end of the provision to clarify that the environmental analyses will be completed in accord-

ance with existing Bureau procedures.Amends the reference to corporationThe final rule deletes the reference to "surrender of a separate horizon" in (b)(4). It also adds a paragraph (c)

that requires the Superintendent to determine that wells have been plugged and abandoned or that legal liabil-ity therefore has been otherwise assumed before approving surrender or partial surrender of a lease.

The final rule adds paragraph (f), which allows for a bond for nationwide coverage in lieu of a surety or personalbond.

Paragraph (c) was deleted.The final rule changed time period for non-production of a lease from 90 days to 120 days in paragraph (e) and

the deadline for requesting a temporary suspension of operations to 20 days prior to the expiration of the 120-day period, rather than the 45th day in which the lease has not produced. The final rule also deletes waiverlanguage and adds a requirement of good cause in order for the Superintendent to extend a temporary exten-sion.

In paragraph (b), the final rule replaces the reference to "in paying quantities" with "for a reasonable profit". Italso adds that assignors are liable for drainage upon determination of the Superintendent

Paragraph (a) of the final rule was amended to allow royalty to be taken in kind. In paragraph (b) the provisionregarding time for payment was deleted, and in subparagraph (b)(2) the reference to NYMEX was moved tosubparagraph (b)(1).

In paragraph (b) of the final rule, the calculation for determining gross proceeds was amended and a method fordetermining the heating value of gas was added. In paragraph (c) the reference to 1206.173 was replaced witha reference to 1206.180(a)-(b).

The final rule defines how the minimum royalty is to be calculated, and it deletes paragraph (d).In paragraph (a), the final rule adds a provision requiring that the Superintendent be notified if the purchaser is

the responsible party for making payment. In paragraph (b), it deletes the provision stating "unless otherwiseprovided by the Osage Minerals Council and approved by the Superintendent," in an effort to standardize andensure prompt, consistent payments. Paragraph (c) was revised to reference back to paragraph (a) and to de-lete language allowing other rates to be set and the waiver of late fees.

In paragraph (a) at the end, the words "his lease" are replaced with "Section 226.25". In paragraph (b), the pro-vision allowing the Superintendent to authorize extensions was deleted.

The final rule deletes the provision allowing assignment of separate horizons. It also adds paragraphs (a)(i) and(a)(ii), which specify the liability and obligations of both the assignor and assignee when a lease is assigned.

The final rule explicitly requires compliance with NEPA and NHPA.In paragraph (b), the final rule requires the Superintendent to notify or attempt to notify both the surface owner

and the lessee of their opportunity to meet and submit information before the Superintendent issues a decision.The final rule adds a requirement that the Superintendent to notify or attempt to notify both the surface owner

and lessee before setting routes.The final rule deletes the last sentences referencing a court of competent jurisdiction and replaces it with an ex-

press reference to 226.41, which provides for the same relief after compliance with the dispute resolution provi-sions.

The final rule adds requirements for pits or tanks containing deleterious fluids in order to protect the environment.The final rule adds a requirement for compliance with the National Electric Code.The final rule adds a requirement for the Superintendent to notify or attempt to notify both surface owner and les-

see before easements are granted.The final rule amends the provision allowing wells to be permanently abandoned if they are no longer capable of

producing in paying quantities rather than for lack of further profitable production.In paragraph (a), the final rule deletes the provision that creates an exception for termination of a lease other

than for cause, and paragraph (c) adds a requirement that the Superintendent's orders for plugging a well be inwriting.

In the final rule, the provision allowing the designation of the parties' representative to be made by the "party incharge of operations" was deleted and changed to require that all of the parties must jointly designate a rep-resentative.

The final rule in paragraph (c) deletes the provision regarding penalties and the adjustment provision for pen-alties.

The final rule clarifies that accidents include environmental and other types of accidents. It also requires the re-porting of thefts within one business day, rather than "promptly" and requires lessees to notify, or attempt tonotify, the surface owner or agent in writing.

The final rule reverts to the language in the current/prior version of the regulation and deletes the Committee'srecommendations for penalties for violations of lease terms, instead adding a provision that the lease canspecify alternative fines and penalties. In 226.68() the provision regarding criminal penalties was deleted asunnecessary because criminal laws are applicable irrespective of their inclusion or reference within these regu-lations.

IV. Explanation of Changes Made inResponse to Departmental Review

In drafting the final rule, theDepartment made revisions to theproposed rule based on its own internal

review, in addition to its review andanalysis of the public comments. Thissection sets forth those the changesmade as a result of that internal review.In Section 226.1, the Department added

references to "other marketableproduct" in the definitions of "lease"and "Osage Mineral Council" in orderto fully incorporate the addition of theterm "other marketable product" into

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the regulations. Without these changes,the Department was concerned that"other marketable product" would nothave been fully and consistentlyreferenced as part of the Osage mineralsestate, which was the original intent ofthe Negotiated Rulemaking Committee.For the same reason, references to"other marketable product" were addedto Section 226.2 and the words "oil andgas" were deleted from 226.5(b) and (d),so that the provision references allleases generally.

The Department revised the definitionof "waste of oil or gas or othermarketable product" to clarify thatwaste only occurs after theSuperintendent makes a specificfinding. The Department was concernedthat without that change, the regulationswould suggest that any productionwithout the advance approval of theSuperintendent would be consideredwaste, resulting in unnecessaryadministrative burdens.

In 226.3, the Department qualifiedthat that consultation with the OsageMinerals Council is required whereappropriate and notes that consultationmust be conducted in accordance withthe Department's Tribal ConsultationPolicy where applicable. Similarly, thenotice and comment requirements of theAdministrative Procedure Act (APA) donot apply to each of the proposedactions and the reference to requiringadherence to the APA has been removedto avoid any presumption thatnotwithstanding the limitations of theAPA, it automatically applies. Rather, itshould be noted that the APA onlyapplies where required by law. Forexample, notices to lessees (NTLs) areinterpretive rules that are not subject tothe notice and comment requirements ofthe APA. See e.g., Perez v. MortgageBankers Assoc., No. 13-1041, U.S.

(March 9, 2015).The Department deleted the word

"other" from 226.4(a)(4) because it wasconfusing. The Superintendent isresponsible for approving andmonitoring all lease proposals, not"other" lease proposals.

The phrase "unless otherwiseapproved by the Superintendent" wasadded to the end of Section 226.4(a)(10)because as drafted it did not allow theSuperintendent to approve actions thatmight have adverse effects on othermineral resources. However, there mightbe instances where the Osage MineralsCouncil wants to allow certain miningto have adverse effects on other lessermineral resources, and the Departmentdetermined that the Superintendentmust retain discretion to approve thoseactions depending on thecircumstances.

In Section 226.5(a)(4)(ii), the phrase"twenty five percent of the bonus bid"at the beginning of the provision wasdeleted because it was inconsistent withsubsection (a)(3). That subsectionrequires that a minimum deposit oftwenty five percent of the cash bonus beoffered, but it is possible for additionalamounts to be deposited, and the intentof Section 226.5(a)(4)(ii) is for all of thedeposit to be forfeited under certaincircumstances. Section 226.5(a)(4)(ii)(C)was amended to add a reference tosubsection 5 for clarification purposes.To address confusion within OsageCounty regarding the applicability ofenvironmental laws, Section 226.5(d)was amended to clarify that the Agencymust comply with applicable laws,including the National EnvironmentalPolicy Act (NEPA), before issuing leasesand will do so by following applicableBIA regulations. Section 226.5(f) wasamended to delete the reference toownership of stock and insteadreference an employee who acquires aninterest in a corporation or businessentity holding a lease, because onecannot acquire an "interest in a lease"by merely owning stock in a company.

In Section 226.6(b)(4), the Departmentdeleted the reference to surrender of aseparate horizon because the OsageAgency does not lease or sublease byseparate horizons, in light of theadministrative burdens thosearrangements have caused in the past.Furthermore, allowing surrender ofseparate horizons causes similarproblems and is not permittedelsewhere on other Indian and Federallands.

The Department deleted subsection(c) in 226.11 because it was repetitive ofthe prior paragraph and the releaselanguage was moved to the beginningfor clarification. In 226.14(c), the 90 daytimeline for a determination on diligentproduction was deleted because it isconsidered overly burdensome,administratively. Instead, a provisionwas added that allows theSuperintendent to require the lessee andOsage Minerals Council to submitadditional information so that he/shecan make an informed determination.

In Section 226.18, the Departmentamended subsection (a) to allow royaltyto be taken in kind so that the provisionis consistent with subsection (b). In226.18(b), the provision regarding timefor payment was deleted because timingof payment is governed by Section226.25, and in subparagraph (b)(2) theprovision relating to the availability ofthe average NYMEX daily price wasmoved to subparagraph (b)(1) to correctan error in the proposed rule.

In Section 226.22, the Departmentrevised how minimum royalty iscalculated because, as set out in theproposed rule, the provision confusesseparate lease concepts. Minimumroyalty is a separate lease term and nota subset of royalty, and Section 226.22is not about underpayment of minimumroyalty, but about the occurrence of acircumstance that triggers the obligationto pay minimum royalty.

In Section 226.25, the Departmentadded a requirement to subsection (a)that requires lessees to provide a writtenagreement if the purchaser has agreed tobe the responsible party for makingpayments. This change is intended toreduce the administrative burden placedon the Superintendent when having todetermine the responsible party. Also, across-reference to subsection (a) wasadded to subsection (c) for consistency.In addition, the phrase "unlessotherwise provided by the OsageMinerals Council and approved by theSuperintendent" was deleted tostandardize and ensure prompt,consistent payments. For the samereason, and to aid in the administrativeimplementation of the provision, theDepartment deleted the provisions insubsection (c), allowing theSuperintendent to set other rates for latefees and allowing the Osage MineralsCouncil to waive late fees, withapproval by the Superintendent.

In Section 226.27(a), the Departmentadded that royalty payments on divisionorders or contracts must be made inaccordance with Section 226.25, since itis Section 226.25 that governs paymentsof royalties and all leases are subject tothe regulations. And, in subsection226.27(b,) the provision allowing theSuperintendent to authorize extensionswas deleted in order to reduce theconsiderable administrative burden onthe Superintendent of having toconsider requests for extensions on acase by case basis.

The Department added provisions in226.29 to clarify liability for wells andrelated facilities once a lease isassigned. The Department found thatthere has been a concern both by surfaceowners during the negotiatedrulemaking and the Office of InspectorGeneral with respect to theabandonment of wells within OsageCounty. The new provisions regardingliability will provide additionalprotections for enforcement after a leaseis assigned and provide greater clarityand transparency regarding lesseeobligations.

In 226.34, the Department added anew provision making clear that NEPAand the National Historic PreservationAct (NHPA) continue to apply within

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Osage County. These are not new legalrequirements and do not create newresponsibilities over what is alreadyrequired. However, the Departmentdetermined it was necessary toexpressly recognize theseresponsibilities in the Rule givenconfusion within Osage County withrespect to the Agency's and lessees'duties under NEPA and NHPA. TheDepartment also added an expressrequirement that, where applicable,requires the lessee to submit certaininformation to aid the Agency inmeeting its obligations under NEPA andNHPA.

The Department amended Section226.52 to allow for the permanentabandonment of a well upon a showingthat the well is no longer producing inpaying quantities, rather than a showingof its lack of further profitableproduction of oil, because the standardfor showing that a well is no longerproducing in paying quantities is moreobjective, less administrativelyburdensome to determine, andconsistent with the standard appliedwith respect to Indian leases outside ofOsage County.

V. Comments on the Proposed Rule andResponses

A. Overview/General

Several commenters stated that it wasnot necessary to change the regulationsand that the proposed changes to theregulations would make oil and gasoperations in Osage County morecumbersome and costly to the industrybecause the burden is being put entirelyon the lessees.

During the negotiated rulemaking itwas explained that the United Stateswas sued by the Osage for breach oftrust with respect to management andadministration of the Osage mineralsestate. The United States settled withthe Osage for $380 million and, as partof the settlement, agreed to engage in anegotiated rulemaking to revise theregulations governing Osage in order toimprove the management andadministration of the minerals estate.Further, not all of the regulations arebeing revised. To the extent that someof the regulations are revised, theDepartment acknowledges that theremay be some additional upfront costs toensure compliance with the regulations.However, the regulations are necessaryto improve management andadministration of the Osage mineralestate. Overall, given the Osage tribaltrust litigation and resulting settlement,the Department had to balance the needto ensure that the regulations fulfill theUnited States trust responsibility to the

Osage with some potential increasedcosts to industry. Moreover, this Rulebrings Osage closer in line to how oiland gas operations are regulated onother Indian and Federal lands andreflects the availability of newtechnology and improved industrystandards since the regulations wereinitially promulgated.

Some commenters stated that theproposed regulations should not beapproved because the Bureau is alreadyshort-staffed and has no budgetaryresources to handle the additional workand explained that the proposedchanges will threaten oil lessees andhave negative impacts on Osageheadright owners quarterly payments.

These comments do not relate to therule but to internal agency operationsthat are outside the scope of therulemaking. However, the Osage Agencydeveloped a staffing plan in 2013 toaddress concerns regarding leaseenforcement and compliance issues.The Osage Agency requested additionalfunding as part of its Fiscal Year (FY)2014 and 2015 budgets, which will beincorporated into its base funding forthe FY 2016 budget cycle. The OsageAgency has also created 13 additionalpositions for inspections, enforcementand lease compliance, leasemanagement and oil and gas accounting.While compliance with the regulationsmay result in some additional upfrontcosts to both industry and the Bureau,the majority of the new regulationsaddress shortfalls that resulted in theOsage's lawsuit against the UnitedStates for breach of trust related tomismanagement of the Osage mineralsestate, including royalty collection,auditing, accounting, record keeping,inspections and lease compliance. Therewas also no evidence presented to showthat finalization of the rule wouldnegatively impact royalty payments,rather the rule has increased protectionsfor ensuring royalty collection andprovisions to ensure that lessees arecalculating royalty in a manner thatminimizes third party manipulation.

Some commenters suggested thatmanagement and enforcement ofregulations governing surface use andlease violations is key.

These comments relate to agencyoperations and implementation and donot relate to any particular regulation.The Department agrees thatmanagement and enforcement of theregulations is key and has worked overthe last few years to address staffingconcerns and budgetary limitations atthe Osage Agency.

Numerous commenters suggested thatthe Department restart the negotiatedrulemaking process and include all

affected parties as part of the NegotiatedRulemaking Committee. Some of thesecommenters suggested that the actualprocess of the rulemaking normallytakes 2 years to ensure that allinterested parties may be properlynotified of the proposed rule changes,be given adequate time to comment andunderstand how new regulations willimpact private citizens. Whereas,commenters stated that in thiscircumstance the rule making waspushed through in a little over sevenmonths resulting in a lack of dueprocess and a one-sided nature of theproposed rules.

The Department does not believe it isnecessary to restart the negotiatedrulemaking process. Formation of theNegotiated Rulemaking Committee wasfirst announced in the Federal Registeron June 18, 2012, and the finalCommittee was announced on July 31,2012. All meetings of the Committeewere published in the Federal Registerat least thirty (30) days in advance, aswell as, posted at the Osage Agency andthe Osage Minerals Council offices.Throughout the process, the Committeeprovided extensive opportunity forpublic comment during meetings andalso welcomed written commentbetween meetings. Issues raised duringthat process included, but were notlimited to, the benchmark index,bonding fees and requirements, andcommencement fees. Other matters werealso discussed across multiple meetings,recorded in meeting summaries, andproposals to the regulations wereadjusted where the Committeedetermined it appropriate, in multipledrafts of the regulations during thatprocess. The administrative recordshows, through the meeting summariesfrom the Committee meetings, that theCommittee not only providedsubstantial time for public comment,but the Committee also engagedextensively with commenters indialogue. Committee members askedquestions and explored options with thecommenter, and sought to reach anaccommodation or revision whereappropriate. Overall, the Committeeprovided 21 public comment sessionstotaling some 18.25 hours of publiccomment during the eight meetings overits August 2012 to April 2013 process.On April 2, 2013, the Committee met forits final meeting and concurrence on aproposed package of revised regulationswas reached between the Federal caucusand Osage caucus.

The Department received numerousform letters generally opposing theregulations and suggesting that makingthe lessees within Osage County complywith Bureau of Land Management (BLM)

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regulations will make Osage lose itsappeal as a one-stop shop and assertingthat the regulations will lengthen thedrilling permitting process, diminish theOsage minerals estate and impactincome generated.

The Department acknowledges thatsome of the new provisions in theregulations are modeled after existingFederal regulations governing oil andgas on other Indian and Federal landsgoverned by BLM. However, under therule, BLM is not delegated with theresponsibility for oil and gas operationswithin Osage County. Rather, BIA hasthat responsibility. Additionally, it isrelevant to note that some commentersnoted their disagreement with the formletters submitted opposing the proposedregulations.

At least one commenter requestedthat the Department amend the rules sothat they properly recognize the State ofOklahoma's primacy and exclusive rolein environmental regulation of oil andgas exploration and productionactivities in Osage County as well as theState's right to regulate the waterswithin its borders. The commenterasserted that the State is betterequipped to design, administer andenforce laws and regulations related tooil and gas development.

The United States holds the Osagemineral estate in trust pursuant to theAct of June 28, 1906 § 3, 34 Stat. 539,543-44, amended in relevant part byAct of March 2, 1929, 45 Stat. 1478(extending restricted trust status ofmineral estate to 1959); Act of June 24,1938, 52 Stat. 1034 (extending restrictedtrust status of mineral estate to 1983);Act of Oct. 21, 1978, 92 Stat. 1660(extending restricted trust status ofmineral estate in perpetuity). Thus, theUnited States, through the Department,has a non-delegable fiduciary obligationto manage the mineral estate for thebenefit of the Osage. It is relevant tonote that one commenter disputed theassertion that the State is betterequipped to address oil and gas leasingin Osage County and explains that theOsage Nation and the United Stateshave more experience and knowledge inadministering and enforcing oil and gasleases in Osage County. The first leasein Osage County was developed in 1896,eleven years before creation of the State,and the United States has regulated andmanaged the Osage mineral estate since1896.

At least one commenter objected toreferences to "reservation lands" inOsage County and asserts that thereservation was disestablished in OsageNation v. Irby, 597 F.3d 1117 (1Oth Cir2010).

This is a legal issue outside the scopeof the rulemaking. The Department doesnot need to address the impacts, if any,of the Irby case in order to revise theseregulations. The United States holds theOsage mineral estate in trust and theSecretary has authority under the Act ofJune 28, 1906, § 3, 34 Stat. 539, asamended, to promulgate regulations tomanage and administer the mineralestate, and this Rule is beingpromulgated pursuant to that authority.

At least one commenter requests thatthe Department and the Osage MineralsCouncil enter into a cooperativeagreement with the State of Oklahomato delegate responsibility formanagement and administration of oiland gas operations to the State.

This comment does not relate to therevised regulations and is outside thescope of the rulemaking process. It isrelevant to note that one commenterdisagreed with the request for acooperative agreement that gives theState administrative jurisdiction inOsage County and cites, 25 U.S.C. la &9, noting that Congress grantedauthority over Indian Affairs to thePresident. This commenter also cited 25CFR 1.4(a), for the proposition that thePresident, acting on his authority, hasspecifically excluded States fromexercising jurisdiction over Indianproperty, including Indian water rights;and further cited legal precedent for theproposition that the Department cannotdelegate authority to a State withouttribal consent and the Osage Nation hasnot consented to such jurisdiction ordelegation. See Assiniboine and SiouxTribes of the Fort Peck IndianReservation v. Bd. Of Oil and GasConservation of the State of Montana,792 F.2d 782 (9th Cir. 1986).

At least one commenter suggestedthat the rule should reflect the separateand unique relationships (a) betweenthe Department of the Interior, and theOsage headright holders, Osage MineralEstate, and the Osage Minerals Councilunder the 1906 Act; and (b) between theDepartment and the Osage Nationunder the 2004 Act.

This comment does not relate to therevised regulations and is outside thescope of the rulemaking process. TheUnited States holds the Osage mineralestate in trust under the Act of June 28,1906, § 3, 34 Stat. 539, as amended, andthe revised regulations only pertain tothe United States' responsibilities to theOsage as defined in that Act. The 2004Act, Public Law 108-431, 118 Stat. 2609(Dec. 3, 2004) speaks to tribalmembership issues for purposes otherthan those defined by the 1906 Act.

At least one commenter suggestedthat the proposed rule likely violates

Executive Orders 12866 and 13175because it adversely affects the Nationand its members. The proposed rulealso has tribal implications and requiresthe Bureau to incur new costs thatrequire consultation with the Nation.There is no evidence that the Bureauhas consulted with the Nation.

Pursuant to the Osage Tribal TrustSettlement, the Bureau is required toconsult twice annually with the OsageMinerals Council, the duly electedgoverning body within the Osage Nationthat oversees the Osage mineral estate.Throughout the Negotiated RulemakingProcess, the Bureau held its requiredconsultations to discuss the rulemakingprocess and other issues with the OsageMinerals Council. During thosemeetings a tribal representative of theNation was invited and present.Additionally, the NegotiatedRulemaking Committee was comprisedof duly appointed members of the OsageMinerals Council.

At least one commenter requestedthat the Bureau make more informationavailable to surface owners and thepublic with respect to operations withinOsage County, including but not limitedto freshwater aquifer maps, welllocation maps, mineral lease-holdermaps and contact information, andlease inspection reports. The commentersuggested that lessees should berequired to report the amount and typeof chemicals used in any hydraulicfracturing operation towww.fracfocus.org.

These comments are not within thescope of this rulemaking. However, asan operational matter, the Bureau isexploring opportunities to make oil andgas operations more transparent bypossibly developing a Web site thatwould contain pertinent information,consistent with the Freedom ofInformation Act requirements, withregards to oil and gas activities withinthe Osage County.

At least one commenter suggestedthat the Department commit to regularlypublish monthly statistical data, provideheadright holders with detailedstatements regarding operational androyalty data, provide all relevant data tothe Minerals Council, and develop anaccessible and auditable database.

This comment is outside the scope ofthe rulemaking. The Osage Agencyregularly provides detailed informationregarding the Osage mineral estate to theOsage Minerals Council on a regularbasis and, consistent with the Freedomof Information Act, headright holdersmay request information relating to theOsage mineral estate from the OsageAgency.

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At least one commenter suggestedthat the mineral estate be independentlyaudited under the auspices of theDepartment's Office of InspectorGeneral and that the audit results beprovided to headright holders.

This comment is outside the scope ofthe rulemaking process. The Departmentnotes, however, that the Office ofInspector General (OIG) issued apublicly available report on the OsageAgency in October 2014 (No, CR-EV-BIA-0002-2013). That report states thatthe Osage Agency needs to institutesubstantial changes to improve themanagement and administration of theOsage mineral estate, and furtherprovides that many of the OIG'sproposed recommendations andconcerns will be addressed uponfinalization of this rule.

Some commenters requested thatSTRONGER should be invited to do anaudit of the Osage Agency and providerecommendations for transparency,accountability and enforcement, as wellas to strengthen regulations.

This comment is outside the scope ofthe rulemaking. Moreover, STRONGERis an organization that focuses on State,not Federal, reviews of oil and gasregulations and best managementpractices. As noted in response to othercomments, the Department's OIG hasrecently performed an audit of theOsage Agency and has issued a publicreport providing specificrecommendations to improvemanagement and administration of theOsage mineral estate. That report notesthat many of the areas in whichimprovement is needed will beaddressed upon finalization of this rule,and other issues are being addressedoperationally. In addition, theNegotiated Rulemaking Committee wascomprised of a team of experts in allfields of Federal oil and gas operations(BLM, Office of Natural ResourceRevenue (ONRR), BIA, and the Office ofIndian Energy and EconomicDevelopment) to evaluate Osage Agencyoperations and to makerecommendations for improving themanagement and administration of theOsage mineral estate.

At least one commenter suggestedthat the Department of the Interiorprovide for full end-to-end accountingto headright holders of withdrawals tothe Osage mineral estate, royaltypayments made, expenses withdrawn,interest earned and quarterlydisbursements to headright holders.

This comment is outside of the scopeof the rulemaking; however, theDepartment provides the OsageMinerals Council with a periodicstatement, at least on a quarterly basis,

that provides information regarding thesource, type, and status of the funds inthe mineral estate account, thebeginning and ending balance for theperiod reported, all gains and losses inthe account and all receipts anddisbursements for the account.

At least one commenter suggestedthat in any provision where theregulations require consultation withthe Osage Minerals Council, suchreferences should be replaced with"approval by the Osage MineralsCouncil."

The Secretary, not the Osage MineralsCouncil, has been delegated theauthority to manage the Osage mineralestate by Congress. Thus, while theBureau is willing to consult with theOsage Minerals Council on mattersrelating to the Osage mineral estate, itmust retain its ability to take correctiveactions against lessees that are inviolation of the regulations, includingtermination of the lease afterconsultation with the Osage MineralsCouncil (Sections 226.25(c), 226.62(b)-(c), 226.63(c), 226.67, and 226.70). Inaddition, the Department must retainthe discretion to make changes to theregulations in the future.

At least one commenter has requestedthat the reference to "for the benefit ofthe Osage" needs to be changed to "forthe benefit of the Osage shareholder!headright owner."

The phrase commented on is in theExecutive Summary of the Rule that wasproposed in the Federal Register onAugust 28, 2013, and is not a commentrelating to the rule.

B. Comments Related to Section 226.1

At least one commenter suggestedthat the definition of "headrightholders" be amended to reflect thedistinction that Congress has madebetween (a) the Osage Mineral Estateand its headright holders and (b) theOsage Nation.

The rule does not define "headrightholders" and the Department does notbelieve it is necessary to define thisterm because it is defined in the 1906Act. Moreover, the distinction made bythe commenter is not relevant to therule. The rule only relates to the Osagemineral estate as defined in the 1906Act and not to other purposes.

At least one commenter suggestedthat the definition of the "OsageMinerals Council" be amended to reflectthe Council's role as the electedrepresentative of the Osage headrightholders, composed of headright holders,and vested with authority to enter leasesand take other actions related to themineral estate.

The Department believes the currentdefinition of Osage Minerals Council inthe Rule is consistent with thiscomment and reflects that the OsageMinerals Council is a duly electedgoverning body within the OsageNation.

At least one commenter soughtclarification on the definition of "OtherMarketable Product" because it isunclear whether language 'for whichthere is a market" refers to a localmarket or any national or internationalmarket. For example, simply becausecarbon-dioxide may be selling inMontana, does not mean there is awilling buyer or market for an Osagelessee.

The Department does not believe thatthere is a need to further expand thedefinition. "[F]or which there is amarket" was intended to be leftsufficiently broad to mean any marketwhich there is a demand that makes iteconomically feasible to develop thenon-hydrocarbon.

At least one commenter suggestedthat the definition of "royalty" beamended to reflect the many diversetypes of payments made by lesseesincluded in the draft regulations, savefor tank fees and fees to arbiters.

Royalty is not defined in thedefinitions section of the rule, but isdefined by the amount a lessee must payon the amount of oil, gas, or othermarketable product sold in accordancewith Sections 226.18 through 226.23.Other fees paid under the regulationsare for administrative costs or expenses.

At least one commenter suggestedthat the definition of "Superintendent"be amended to reflect the ability of theSuperintendent to delegate authorityonly to employees of the Bureau andenumerate an extensive set of dutiesand responsibilities.

The Department does not believe thatthis level of specificity is required ornecessary. The 1906 Act delegated tothe Secretary of the Interior theresponsibility to manage and administerthe Osage mineral estate and suchdelegations are governed by applicableauthority, including the DepartmentalManual. If the Secretary delegates aspecific duty to the Superintendent, theSuperintendent may only furtherdelegate that responsibility inaccordance with the DepartmentalManual. Further, to the extent that theSecretary delegates certainresponsibilities to the Superintendent,those delegations may be changed bythe Secretary, and this authority isexpressly retained in the definition of"Superintendent" in Section 226.1.

At least one commenter suggestedthat the provision allowing the

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Superintendent to delegate her authorityneeds to be clarified; it could be read toallow the Superintendent to delegate tothe Osage Nation, which includes non-headright owners.

No changes were made in response tothis comment. The question of theSuperintendent's authority to delegate isnot controlled by the regulation but isan independent question of Federalauthority. The Superintendent can onlymake delegations consistent withapplicable authorities includingDepartmental Manuals.

At least one commenter suggestedthat the term "surface owner" bedefined in the regulations as "anyperson, firm, corporation or other entitythat owns the surface of the land onwhich oil and gas development isproposed or occurs."

In response to this comment, adefinition of "surface owner" wasadded to Section 226.1 to include "anyperson or entity that owns a surfaceestate within Osage County, irrespectiveof whether the surface estate is held infee, restricted fee or trust status."

With respect to the definition of"waste of oil or gas or other marketableproduct" (226.1), one commentersuggested clarification, noting that evenusing a reasonable and prudentoperating standard, subcategory (1) "areduction in quantity or quality ofproduct from a reservoir" may prove sovague and open to interpretation that itwill be both unworkable and subject todisagreement whenever such a claim ismade.

The definition of "waste of oil or gasor other marketable product" must beread in conjunction with Section226.21, which specifies who makes adetermination regarding royaltypayments for lost or avoidably wastedmaterials. Section 226.21 allows thelessee to submit information in supportof his/her position that gas was notwasted or avoidably lost before a findingis made. This provision ensures that theSuperintendent has all relevantinformation from the lessee beforemaking a final decision. In addition,during the Negotiated Rulemaking whenthis provision was discussed by theCommittee and the public, it was notedthat the Superintendent's decision issubject to appeal under 25 CFR part 2.

At least one commenter noted thatreferences to the "Osage Nation" in therule diminish the rights of the headrightowners because the Nation includesnon-headright holders. The commenteralso stated that the Osage Tribe (underthe 1906 Act) is not the same as theOsage Nation today.

The reference to the Osage Nation inthe definition of Osage Minerals Council

is an accurate reference because theOsage Minerals Council is a dulyelected governing body within the largerOsage Nation. Only Osage headrightholders are eligible to vote forcandidates for the Osage MineralsCouncil.

C. Comments Related to Section 226.3

At least one commenter stated thatthe BLM regulations and on-shore oiland gas orders are onerous and costlyto comply with and lessees don't knowhow to navigate them. This commentersuggested that it cost them over $87,400for a drilling permit in Kay County,Oklahoma, and that following BLMrequirements will make the decision todrill more cost-based rather thanpotential-based.

Section 226.3 allows the Bureau, inconsultation with the Osage MineralsCouncil, to adopt BLM onshore oil andgas orders, notices to lessees or relatedonshore oil and gas regulations, butdoes not require adoption. Prior toadoption, the Bureau must comply withthe Administrative Procedure Act. Thisrule does adopt two BLM onshore oiland gas orders that relate to themeasurement of gas in Section226.63(a), and hydrogen sulfide inSection 226.60(f), but neither of theserelate to the drilling permit process.Moreover, while Section 226.34(previously numbered Section 226.16),which relates to drilling permits, wasamended to expressly provide thatNational Environmental Policy Act andthe National Historic Preservation Actapply, those statues are alreadyapplicable within Osage County. Theamendment only makes clear thatlessees must submit certainenvironmental information to assist theagency in complying with those laws.To the extent that the comment could beinterpreted to imply that Section 226.60(previously numbered Section 226.36) isrevised to add requirements regardingwell safety, those requirements wereadopted from the BLM regulations, butdo not impact the drilling permitprocess. It is also relevant to note thatthe rule does not become effective until60 days after publication and the Bureauis working on a plan to educate lesseesin Osage County regarding the changesto the regulations to ensure complianceand understanding of any newrequirements before the rules go intoeffect.

At least one commenter suggestedthat all seven of the BLM's currentonshore orders be adopted immediatelyand that future onshore orders beadopted automatically by the Bureauwithout consultation with the OsageMinerals Council.

The Negotiated RulemakingCommittee reviewed all of the BLM'sonshore orders and after muchdiscussion and public comment onlyrecommended adopting Orders 5 and 6.However, the Committee recommended,and the final rule adopts therecommendation, that the Bureau beexpressly provided the authority toadopt other onshore oil and gas ordersin the future. The requirement that theBureau consult with the Osage MineralsCouncil prior to any such futureadoption is consistent with ExecutiveOrder 13175 on tribal consultation. Inaddition, the Bureau must comply withthe Administrative Procedure Act inadopting any future onshore oil and gasorders.

D. Comments Related to Section 226.4

At least one commenter suggestedthat in Section 226.4(a)(i 0), theSuperintendent's responsibilities withrespect to protection of theenvironment, public health, and safetyneed to be expanded and strengthened.

The rule already adequately addressesthis comment, however, an additionalchange was made to Section 224.44(e) tofurther address this and other commentsrelated to safety and the environment.For example, in addition to Section226.4(a)(10), the rule has specificprotections against hydrogen sulfide gasin Section 226.60(f), which was addedduring the negotiated rulemakingprocess to address concerns from thepublic regarding the existence ofhydrogen sulfide within Osage County.Section 226.44 also provides additionalrequirements with respect to the lessee'sobligations for preventing pollution andan additional provision was added forsafety, to require fences around pits andtanks and that removal and remediationof tank and pit sites occur immediatelyafter completion of operations. Section225.45 provides additional requirementswith respect to other environmentalresponsibilities. These are just some ofthe provisions that ensure lessees takesteps to protect the environment andensure public health and safety.

At least one commenter opposedSection 226.4(b) of the proposed rulebecause it allows oral orders, whichcould risk creating additionaluncertainty in the supervision ofoperations and could be misinterpretedand/or unclear. It was suggested that awritten order clearly identifying specificviolations, necessary corrective actions,and the time for compliance wouldensure full compliance and create arecord in the event of an enforcementaction or surface owner lawsuit.

The Department agrees that writtenorders are preferable and has removed

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all references in the rule allowing oralorders so that it is clear that writtenorders must be issued.

Some commenters suggested that theBureau should inspect oil and gas leasesat least once annually and that theBureau should promptly address andmore frequently inspect non-compliantleases. It was suggested that there is ageneral lack of day-to-day oversight andthat most ranches have old scars orcurrent pollution issues associated withoil and gas production and saltwaterspills. Commenters also suggestedposting information regardinginspections like the BLM does becauseit allows landowners and the public tosee when wells are inspected andviolations reported.

To the extent that these commentsrelate to the rule, they are alreadyaddressed by the rule. In Section226.4(c), leases with a history ofnoncompliance must be reviewed atleast once annually. The Bureau hasalso established a toll-free 24 hourhotline (855) 495-0373 for reportingspills or accidents and a tracking systemhas been created to ensure that all callsare responded to in a timely manner andother officials are notified asappropriate. The Bureau has alsodiscussed creating a Web site for theOsage Agency where it can post theresults of investigations and otherinformation related to oil and gasoperation in Osage County. However,this is being done outside therulemaking and any information postedmust be reviewed for compliance withthe Freedom of Information Act.Additionally, the Office of InspectorGeneral (OIG) issued a publiclyavailable report on the Osage Agency inOctober 2014 (No, CR-EV-BIA-0002-2013) that discovered some of the sameconcerns, but many of the OIG'sproposed recommendations andconcerns will be addressed uponfinalization of this rule. The Bureau isalso making a number of operationalchanges that are discussed in that reportin order to strengthen the managementand administration of the Osage mineralestate.

At least one commenter suggestedthat a new subsection should be addedto Section 226.4 to require theSuperintendent to adopt rulesprohibiting Osage mineral headrightholders from working in the leaseinspection division of the Bureau toavoid conflicts of interest.

Congress has recognized that Indiantribes and their members should havedirect involvement in federal programsenacted for their benefit. Under 25U.S.C. 472, Congress recognized thatIndians should be involved in the day-

to-day operations affecting them and theBureau of Indians Affairs must applyIndian preference to positions open inthe Osage Agency. The Department isnot persuaded by the assertion thatOsage headright holders who may beemployed by the Osage Agency willrefuse to enforce regulations simply toadvance their alleged personal self-interests. In any event, employees areaccountable to their supervisors andultimately to the Secretary. If there areissues with non-compliance, membersof the public may contact theDepartment to report such violations.

E. Comments Related to Section 226.5

At least one commenter suggestedthat Section 226.5(c) be revised torequire the Superintendent to notify thesurface owner beneath whose landminerals are leased.

This comment is adequatelyaddressed in the rule. The NegotiatedRulemaking Committee agreed inresponse to similar public commentsraised in the negotiated rulemakingprocess that surface owners should haveaccess to information regarding whetheran oil and gas lease covers their surfaceestate. Thus, as proposed and adoptedin the final rule, Section 226.5(c)requires that the Superintendent post atthe Agency, within 30 days followingapproval of a lease, a legal descriptionof the mineral estate that was leased.This ensures that surface owners haveaccess to information regarding landsleased, while reducing the burden of theOsage Agency in locating and notifyingeach individual surface owner.

F. Comments Related to Section 226.6

At Jeast one commenter suggestedthat in Section 226.6(a), regulatorylanguage be included clarifying that alessee that surrenders its lease is stillliable for plugging, abandonment, andreclamation obligations associated withthe lease area.

In response to this and othercomments concerning abandoned andunplugged wells, the Department hasadded a paragraph (c) to Section 226.6,to require the Superintendent to ensurethat the lessee has either plugged allwells and reclaimed the surface, inaccordance with the regulations, orshow in writing that upon surrender thefuture liability for all wells locatedwithin the lease or portion of the leaseto be surrendered has been transferredto another party.

G. Comments Related to Section 226.8

Some commenters suggested that theterms of an oil and gas agreementshould be given primacy so that theregulations recognize that in the event

of a conflict between the regulations andan oil and gas agreement, the terms ofthe oil and gas agreement control. Thesecommenters expressed a lack of clarityin the intent behind Section 226.8 andproposed to make clear whether 226.8includes a pre-existing lease. One suchcommenter requested leaving existingleases as they are (highest posted price)and only making new leases subject toNYMEX, stating that otherwise therewill be legal challenges.

The Department does not believe achange in the rule is needed to addressthis comment. Section 226.8 has onlybeen renumbered in the rule (previouslynumbered as Section 226.7). Thatprovision specifies that amendments orchanges to the regulations cannotchange the terms of pre-existingapproved leases with respect to the termof the lease, rate of royalty, rental oracreage, unless otherwise approved ofby the parties and the Superintendent.Thus, the rate of royalty in pre-existingapproved leases will not change as aresult of the rule, but the provisiondescribing how royalty is calculated(i.e., NYMEX at Cushing), couldproperly apply to pre-existing leases.This rule could also affect such mattersas lease operations and maintenancerequirements, reporting requirements,and other aspects of pre-existing leasesother than the key lease terms specifiedin Section 226.8.

H. Comments Related to Section 226.9

Some commenters noted that theproposed rule requires each lessee topay a new and unique bond for thedevelopment of the Osage mineralsestate and does not include recognitionor acceptance of already establishedand sufficiently protective nationwidebonds regularly posted by lessees. Thesecommenters suggested that not allowinga nationwide bond would be completelyatypical and singularly applicable to theOsage Agency and could hinderdevelopment.

The Department agrees with thiscomment and has added the provisionallowing nationwide bonds back intoSection 226.9 of the rule.

Several commenters objected to theincrease in the amount of bondingrequired and asserted that requiringbonding at $5,000 per well isunaffordable. Some argued that lesseeswill have to plug wells because theywon't be able to afford bonding or thatthe new amount will tie up capitalavailable to the lessee to developproduction.

The Department disagrees with thiscomment and in reviewing the recordhas found that there is a need forincreased bonding. The Department

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found that the Committee looked at theactual cost to plug wells and tried tofind a balance between covering the costof plugging a well while, at the sametime, not overly burdening lessees. Theoriginal bonding amounts were based ona quarter section and did not correspondin any way to plugging and remediationcosts related to wells, which must bedone on a per well basis. The newregulation ties bonding to the number ofwells and caps the per well bondingrequirement at 25 wells for all leases,corresponding more directly to the factthat plugging costs are incurred on a perwell basis. While some commentersrequested that the Department includean allowance for nationwide bonding,none of public comments justified analternative bonding amount. Thus, theDepartment found that overall, theCommittee recommendation wasreasonable and reduces administrativecosts because the per well bondingstreamlines implementation. TheDepartment also found it necessary tomaintain per well bonding requirementsin light of a recent report on the OsageAgency issued by the Department OIG,which discussed and noted thehistorical failure to plug wells in OsageCounty and the need to ensure that thisproblem is addressed in the future.

Some commenters argued thatlimiting bonding to $5,000 per well forup to 25 wells is inadequate to ensuresufficient remediation andrecommended no less than $5,000 forshallow wells (less than 3,000 feet indepth) and $10,000 for deep wells(deeper than 3,000 feet) and deletion ofany cap. Some of these commentersrequested that the per-well bondingamount should be defined as an amountsufficient to cover 125% of the cost of(i) plugging a single well and (ii)reclaiming the well site and surroundingland impacted thereby.

The Department believes that the rulesufficiently balances the need forincreased bonding with the fact thatbonding is only for insurance purposesand does not eliminate the lessee'sobligations to plug abandoned wells andremediate surface lands in coordinationwith surface owners. Bonding is onlyintended to provide assurances to theBureau that the lessee has incentive toplug a well and is not intended to createcomplete upfront funding for theplugging of a well at an unknown timein the future. Nor is bonding intendedto cover surface remediation. To theextent that a surface owner isunsatisfied with remediation on the partof a lessee, he or she may seek damagesin accordance with Sections 226.40-41,or pursue any other legal remediesavailable to him or her. The Department

found that the Committee considered,but rejected after substantial publiccomment in opposition, the notion torequire bonding at 125 percent the costof plugging a well.

Some commenters requested that afinal rule provide a grandfatherprovision for bonds on existing leasesthat would also apply to any new leasesthat the same lessee may acquire.

The Department has concluded that itis necessary to make changes to bondingwith Osage County and there have beenhistorical problems with adequatebonding in Osage County as found inthe recent report issued by the OIG inOctober 2014. The Department foundthat the issue of bonding was discussedthroughout the negotiated rulemakingprocess and that members of theCommittee and the public noted that thecurrent rate of bonding does not relateat all to the fact that costs for pluggingoccur on a per well and not per leasebasis. Moreover, members of the publichave commented that they believe thereis a problem throughout Osage Countywith abandoned and unplugged wellsand current bonding rates were notsufficient to address or encourageremedying these issues. Thus, theDepartment believes that it is reasonableto adopt the revised bonding amountsproposed by the Negotiated RulemakingCommittee to better relate bonding tothe cost of plugging a well andincentivize lessees to plug wells thatwill no longer be used so that they canget a release of their bond. The rule alsoprovides new provisions for ensuringthat the Bureau releases bonds in atimely manner.

Some commenters asserted that mostinsurance companies won't write oiland gas lease bonds now and the newregulation will make it more difficult.

The Department does not believe thatthe rule will make it more difficult toobtain oil and gas lease bonds.Moreover, while the amount of bondinghas increased, the rule caps the amountof the increased bond to a maximum of25 wells. The rule allows for differentways to acquire a bond, including theability to obtain a surety bond thatmeets the requirements of the rule, andthe Department has further revised therule to allow nationwide bonds, whichare accepted elsewhere on other Indianand Federal lands. While theDepartment understands that there maybe some lessees that for various reasonsmay not be able to get a bond, theNegotiated Rulemaking Committeediscussed that some of the issues relatedto those failures were due in part todefaults caused by particular lesseesand are not attributable to the cost ofbonding. Bonding is a requirement

throughout the oil and gas industry andthose who want to engage in oil and gasoperations must expect to be required toprovide assurance that they willproperly plug and reclaim their wellsites.

Some commenters asserted thatbonding at $5,000 per well isunaffordable and will cause smalllessees to go out of business becausemost wells are either not able to produceenough to cover the bonding amount orare inactive and pose no threat theenvironment.

For many of the reasons addressed inother responses to comments onbonding, no additional changes arenecessary in response to this comment.In addition, the unused and unpluggedor abandoned wells do pose a threat tothe environment such as possiblepollution of fresh water formations dueto migration of oil, gas, saltwater andother substances. For example,abandoned wells can provide pathwaysfor oil, gas or brine-laden water tocontaminate groundwater supplies or totravel up to the surface due to thedeterioration of the casing or surfaceequipment deterioration or malfunction.If the production is insufficient to coverthe cost of bonding, the Department isconcerned that the production will alsobe insufficient to cover the cost ofplugging and reclamation. Thus theincrease in surety amounts will helpensure the operator's diligence inplugging and abandoning andreclaiming the surface.

At least one commenter suggests thatthere should be a ceiling to the bondingrequirement, like the State ofOklahoma's cap at $25,000 per lessee.

This comment is already addressed bythe rule, which does provide a cap forbonding in Section 226.9(c) at $5,000per well for a maximum of 25 wells perlessee for all leases held within OsageCounty. Additionally, in response topublic comment, the rule was furtherrevised to allow nationwide bonding.

At least one commenter suggestedthat the cap on bonding amounts shouldbe eliminated from the regulations.

The Department disagrees with thiscomment because it is generallyaccepted within the oil and gas industrythat bonding is for insurance purposesand is not intended to cover the entiretyof the costs associated with pluggingand remediation of every well site,rather bonding provides an incentive toperform plugging and remediation ofwell sites and screens out unreliablelessees who fail to perform these dutiesbecause lessees that default on theirresponsibilities will not be able to get abond in the future.

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At least one commenter suggestsbonding should follow the OklahomaEnergy Resources Board model used inthe rest of the State of Oklahoma.

No changes to the rule are necessarywith respect to this comment. TheOklahoma Energy Resources Board(OERB) does not bond or plug wells.The OERB is a State-incorporatedsurface restoration agency that lessees inthe State of Oklahoma voluntarilycontribute to for remediation andreclamation of abandoned well sites atno cost to surface owners. The Bureauhas met with OERB and confirmed thatOERB has historically been willing tooperate within Osage County andcurrently works with surface ownersand the Bureau for Remediation withinOsage County in accordance with itsnormal process and procedures. Thegoal of the regulation is to preventorphan wells that will further burdenOERB and the responsible operatorswho fund it.

Some commenters noted that they aregenerally pleased with the proposedregulations but noted their concernswith plugging wells. Specifically,commenters stated that bonding needsto be more proactive and well sitesremediated because the proposedregulations do not address currentabandoned wells and, rather thanplugging the wells, lessees often justpass wells to the next lessee when theyassign or sell their lease.

This is an issue that cannot entirelybe addressed in the regulations, whichgovern on-going oil and gas operations.The Department recognizes that there isan issue with respect to abandonedwells within Osage County and workswith the Osage Minerals Council toaddress these issues. The OsageMinerals Council has contracted withthe Bureau to take over the function ofplugging orphaned or abandoned wellsand currently operates the programwithin Osage County. In addition, asmentioned in previous responses, OERBoperates in Osage County to remediatethe surface area around orphaned orabandoned wells that have beenplugged. To the extent that this issuecan be remedied in the future by therule, the Department has increasedbonding to more closely relate to costsassociated with plugging a well andreclamation (on a per well basis) toprovide an incentive to ensure lesseesproperly plug and abandon wells andhas also added a provision, Section226.6(c), requiring that before a leasecan be surrendered or partiallysurrendered, the lessee retains any pastliability incurred within the lease orpartial lease to be surrendered, andmust show that he has either properly

plugged and abandoned all wells and/orthat another party is taking full legalliability for the wells within the lease orpartial lease to be surrendered. Inaddition, a new provision was added asSection 226.29(a)(i), clarifying that theassignment is subject to the continuingobligations of the assignor to meet itsplugging and abandonment obligations,and a new Section 226.29(a)(ii) wasadded making clear that the assigneeretains all responsibility for allunplugged wells under the lease orpartial lease assigned.

To address the abandoned well issuewithin Osage County, one commentersuggested that a company fund beestablished whereby lessees would payin the value of 2 barrels of oil per yearfor each active well less than 4,500 feetand 3 barrels of oil for wells less than7,500 feet and the fund would be usedto plug abandoned wells.

The Department does not believe thisis an issue within the scope of therulemaking. The regulations govern on-going oil and gas operations. To theextent that there are historical issueswith respect to abandoned wells andwell sites, the Department can explorewith the Osage Minerals Councilwhether or not a voluntary fund couldbe established to address the historicalissues. The Department also reiteratesthat as stated in responses to othercomments, OERB does operate withinOsage County to remediate abandonedwell sites and the Osage MineralsCouncil currently operates the programfor plugging abandoned wells.

L Comments Related to Section 226.14

Numerous comments were receivedobjecting to the termination for non-production in Section 226.14(e).Commenters suggested that thetimeframe for termination fornonproduction needs to be increasedand/or kept at one year and not 90 days.One commenter noted that if aparticular well produces very little, it isnecessary to have the time to evaluatethe upper and lower potential of thewell regarding future oil and gasopportunities, as well as the ability toshut the well in for short periods whenthe price of the oil or gas becomesuneconomical to produce at that wellwithout the lease being terminated.Another noted that the 90-dayrequirement will prevent companiesfrom purchasing tracts because they willnot have time to put the tracts intoproduction. One commenter suggeststhat a more reasonable requirementwould be a 180 day period, with noticeto the Superintendent that the lesseeneeds an extension 20 days prior to theexpiration of the 180 day period. Some

commenters noted that people haveother full time jobs and can't get workdone quickly and it sometimes takes afew months to get work done. Anothercommenter stated that the one-yeartermination provision has been workingfine and it is expensive to hire peopleto fix problems and lessees don't alwayshave the money. Some commentersnoted that oftentimes equipment isbackordered or weather causes delayand they wouldn't be able to complywith the 90-day requirement.

In response to comments, theDepartment has further revised the ruleto change the time period fortermination for non-production from 90days to 120 days and require thatrequests for extension of time besubmitted at least 20 days prior toexpiration of the 120-day period, butgiven the additional time for non-production and the need to reduceadministrative burdens in enforcing thisprovision, the Department deleted theprovision allowing the Superintendentto waive the 20 days advance noticerequirement. For clarification purposes,the Department also added a standardfor extending temporary suspensions torequire good cause. The Departmentfound that there was substantialdiscussion on this issue during thenegotiated rulemaking and the Osagerepresentatives on the Committee wereopposed to allowing nonproduction forperiods of 180 days or more. Althoughthe Osage representatives on theCommittee also rejected a 120-daytimeframe during the negotiatedrulemaking process, the Department hadto balance the concerns of the Osagerepresentatives with the concerns of thelessees regarding operationcontingencies and its ability toadministratively manage leases fornonproduction. The Department did notview as relevant, concerns that a lesseemay have another job that inhibits hisor her ability to produce within aparticular timeframe or concerns that aparticular lessee may not be able toafford equipment or staff becauseSection 226.14(c) states that all lesseeshave an obligation to diligently developtheir lease. The Department also foundthat concerns regarding the ability toput a well into production weremisplaced because Section 226.14(e)only contemplates termination fornonproduction after the primary term ofthe lease when the lessee is expected tobegin production.

At least one commenter suggestedthat lessees aren't in a rush to dobusiness in Osage County and theBureau needs to encourage lessees tokeep their properties up, not terminatethem.

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No response is necessary to thiscomment because it is not substantiveand does not provide anyrecommendations.

At least one commenter objected to226.14(e) on the basis that some wellsonly produce one barrel per day and oilwill not be picked up for sale within 90days or for at least six months, andunder this provision this producing wellwould be considered non-producingbecause no sale took place within 90days and that is unfair.

This comment misinterprets Section226.14(e), which does not provide thatwells that are producing in payingquantities would be terminated fornonproduction within the prescribedtimeframe. It is understood that sales areintermittent in nature and that a wellmay be producing but that a sale maynot occur within 90 or 120 days. So longas the lessee reports production, thelease will continue, it is only the failureto produce, not the failure to sell, thatterminates a lease under this provision.The regulations, however, expresslyprovide that all lessees have anobligation to diligently develop theirleases as set forth in Section 226.14(c).

A commenter stated that therequirement to drill on every quartersection in order to hold a lease exposeslessee to excessive financial risk andcauses excessive impacts to the landand wildlife. Leases should instead bestructured to allow focused drilling.

This comment does not accuratelycharacterize Section 226.14(a). Section226.14(a) requires a lessee to place awell in production within the landembraced by a lease within 12 monthsof the date of approval of the lease, oras otherwise provided for in the leaseterms, but does not require a lessee todrill in every quarter section. A leasemay encompass an entire quartersection or a larger land area. Lessees arerequired to act prudently in addition todiligently developing the mineral estate.The rule also includes provisions toensure that lessees conduct alloperations in a manner that protectsother natural resources, environmentalquality, life and property. See Section226.33.

At least one comment was receivedsuggesting that the factors in Section226.14, governing when theSuperintendent may impose restrictionsas to time of drilling and rate ofproduction, should be expanded toencompass environmental, publichealth and safety concerns, and theinterests of the Osage Tribe, becauseactivity should not unduly interfere withsurface uses.

The Department disagrees with thiscomment. The Osage mineral estate is

held in trust by the United States andwas reserved by the United States forthe purpose of mineral development.The rule also does not change the basicpremise of law that a surface estate issubservient to a dominant mineralestate. The rule recognizes that a lesseeis permitted to use as much of thesurface estate that is reasonable foroperations. See Section 226.37. Thus,the regulations provide limitations onsize of drilling sites (Section226.38(a)(3)) and require that lesseesconduct operations to protect othernatural resources and environmentalquality, life and property (Sections226.33(a)(2)-(3) & 226.45), and requirelessees to take certain steps to preventpollution (Section 226.44). At the sametime, lessees have an affirmativeobligation to diligently produce a lease(Sections 226.14(c) & 226.33(a)(4)) inaccordance with the overall statutoryand regulatory framework. In the eventthat a lessee is violating the regulations,the Superintendent has authority to takeactions to remedy the violations(Sections 226.67 & 226.68).

J. Comments Related to Section 226.15

At least one commenter objected to226.15 with respect to drainageasserting that drilling offset wells toprevent drainage is not necessarybecause the Nation owns all theminerals in Osage County. Drilling offsetwells would not only requireconsiderable time, resources andexpense, but this unnecessary drillingcould adversely affect environmentaldamage. It was suggested that theBureau should consider removing thissection entirely or narrowing its scope toclarify the conditions where offset wellsare necessary and also ensure that thereis an appeal process to protect againstarbitrary decision making.

Under the 1906 Act, the mineralestate is held in trust by the UnitedStates for the benefit of the Osage.However, the drainage provision in theRule is intended to ensure diligentdevelopment of all lease sites becausenot all leases have the same royalty rate.Thus, if a lessee holds multiple leasesnext to each other, the drainageprovision will ensure that the lessee isnot able to focus drilling only the leasesite that has a lower royalty rate to thedetriment of the Osage. However, tofurther clarify the provision and reducethe burden on lessees, subsection (b)was revised to clarify that drainage doesnot occur if the lessee can show that itcould not produce a paying quantity ofoil or gas "for a reasonable profit",rather than "in paying quantities."Usually "in paying quantities" onlymeans enough to recover day to day

operational costs. Subsection (d) wasalso amended to clarify that an assigneeis responsible for drainage even if itwould not be economic, at the time ofassignment, to drill an offset well, toensure that the Osage are protected if alease is assigned. The Department alsonotes that 226.16(d)(1) is intended toclarify that a well drilled to protectagainst drainage must be in continuousproduction and the obligation to paycompensatory royalty can be revived ifthe protective wells cease production.

K. Comments Related to Section 226.18

Several commenters suggested thatmeasuring oil royalties based onNYMEX pricing is unattainable and thatit is unfair to require lessees to pay aroyalty based on a price they cannotobtain. One commenter suggested thatNYMEX will gouge small lessees andothers suggested that NYMEX will hurtOsage shareholders. A few commenterssuggested, rather than NYMEX, royaltyrates should be commensurate andcompetitive with those found in theregion and in similar places around thecountry. One commenter suggested thatonly if the rule required lessees to bepaid NYMEX prices would it be fair.Another noted that it is okay to usemarket center price as a reference point,but the market center price must beadjusted for location and quality.Another stated that because many wellsin Osage County are stripper wells andproduce low volumes and are onlyprofitable under the existingregulations, NYMEX would harmprofitability and shorten production lifeof leases, and suggested instead thatroyalty should be based only on theprice paid to lessees, allowing thecompetitive marketplace to set theprices. One commenter noted thatNYMEX will cost as much or more than$3 per barrel more than what is beingpaid now.

In the Osage Tribal Trust Settlement,the Department agreed to engage in anegotiated rulemaking and, among otherthings, identify appropriate revisions tothe methods for calculating royalty foroil and gas. The Negotiated RulemakingCommittee reviewed various indices toutilize for calculating royalty. TheCommittee sought a price benchmarkthat (1) was appropriate for oil sold inOsage County, (2) accurately reflectedthe oil market in Oklahoma, (3) waswidely published, and (4) independent.The committee found that NYMEX wasthe only benchmark that met all fourcriteria. After public comment, theCommittee decided to propose NYMEXat Cushing, Oklahoma, as the index forcalculating oil royalties. The Bureau hadthe ONRR review and evaluate NYMEX

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at Cushing to determine whether it wasan appropriate market center for OsageCounty. The ONRR's reportrecommends using NYMEX at Cushingbased on its review and analysis of pricedata from Osage County and thesurrounding area coupled with ONRR'sexperience using different index pricesfor Federal oil valuation. Specifically,ONRR found that NYMEX is widelyused and accepted by the industry andis representative of the value of oil andgas received on and near Osage County.ONRR also found that because OsageCounty is so close to Cushing,Oklahoma, adjusting NYMEX forlocation is unnecessary. The rule, inSection 226.19 (gravity adjustmenttable) also provides for adjustments toNYMEX based on the quality of the oil.The Department also found that duringthe public comment process in thenegotiated rulemaking meetingsvirtually no alternative indices forroyalty valuation of oil were suggestedby the public, other than keeping thehighest posted price. The Departmentfound that the Committee explained tothe public that a change in royalty wasneeded because some on the Committeedid not believe that the highest postedprice was protective of the trustbeneficiary and that highest postedprice was subject to manipulation anddid not protect the trust beneficiaryfrom non-arms-length transactions. TheDepartment is required to establishregulations concerning Indian oilvaluation based on its federal trustresponsibility to act in the best interestsof the Indian beneficiary, including aduty to maximize revenue for Indiantribes and Indian mineral beneficiaries.The Department also found that duringthe negotiated rulemaking, a staffmember to the Committee noted that inhis view since 1994, the highest postedprice was often below sale prices formany lessees and, as a result, Osageheadright holders were not alwaysreceiving the full royalty amount thatthey were due. In conjunction with theReport from the ONRR and therecommendations from the Committee,the Department has determined thatutilizing NYMEX at Cushing, Oklahomato calculate royalty payments for oilprotects the interests of head rightholders and is not overlyadministratively burdensome toimplement or enforce.

A commenter suggested that the oilroyalty benchmark be established at thehighest rate that the market will bear onthe basis of the sale of West TexasIntermediate (WTI) crude, not NYMEXfutures contracts. Similarly, acommenter suggested the gas royalty

benchmark be established at the highestrate that the market will bear. Bothwould allow leases to be competitivelybid or negotiated to acquire themaximum ultimate economic recovery.

The Department agrees that there ismerit to the use of WTI as the pricingbenchmark for Osage oil. That wasconsidered during the sub-committeeevaluation of the various benchmarkoptions. Use of WTI was ultimatelyrejected by the Committee because itwould require location differentialpricing and transportation adjustmentsthat did not satisfy the request forsimplicity and the need to minimizeadministrative burdens. Furthermore,WTI did not mirror the Oklahomamarket as well as NYMEX settlement atCushing. Benchmarks based onweighted average prices of arms-lengthtransactions in a given market area aregenerally considered a fairrepresentation of market value. Termsthat require "the highest rate the marketwill bear" are, by their very nature,dismissive of transactions that occurbelow that threshold. As such, theywould be unfair to parties that are ableto negotiate satisfactory arms-lengthagreements below "the highest rate themarket will bear." Pricing based on suchterms would not be considered fairmarket value.

Several commenters requested that atransportation allowance for trucking orpiping oil to Cushing should be factoredinto the calculations when the lesseeuses the Cushing posted price inaccordance with Section 226.18(b)(1).Some of these commenters stated thattransportation allowances are alsoappropriate when, under Section226.18(b)(2), a lessee sells oil in alocation other than Cushing and theactual sales price exceeds the Cushingprice because of the transportation costsincurred by the lessee. Othercommenters suggested thattransportation costs need to be takeninto account because of the economicfact that there is a cost involved if youwant to sell oil.

The Bureau had the ONRR review andevaluate NYMEX at Cushing, Oklahoma,to determine whether it was anappropriate market center for OsageCounty. The ONRR's reportrecommends using NYMEX at Cushingbased on its review and analysis of pricedata from Osage County and ONRR'sexperience in using this process forFederal oil valuation. The ONRR alsofound that because Osage County is soclose to Cushing, Oklahoma, adjustingNYMEX for location is unnecessary. TheONRR recommended against allowingtransportation deductions and notedthat eliminating transportations

deductions would: (1) Increase revenueto the Osage, (2) reduce litigation coststo the Tribe and industry, (3) providecertainty to the industry and assuremore contemporaneous compliance and(4) reduce administrative costs to theFederal government and the industry.Based on those recommendations andthe Bureau's desire to reduceadministrative costs while at the sametime fulfilling its trust responsibility,the Department decided againstallowing transportation allowances. TheDepartment also found that there wasdiscussion of whether to allowtransportation allowances during thenegotiated rulemaking, but theCommittee also chose not to allow forsuch deductions for a variety of reasons,including the difficulty in developing asimple formula and the administrativeburdens of enforcing accuratetransportation deductions.

One commenter noted that underSection 226.18(c), for royalty taken inkind, a lessee can be required to supplyfree storage for a period of 60 days, andthis subsection should provide that ifthe lessor elects to exercise this right,the lessee should be indemnified or heldharmless for losses of such oil by causesbeyond the lessee's control.

Section 226.18(c) was previouslynumbered as Section 226.11(a)(3), andhas not been revised through thisrulemaking. No further changes arenecessary to this provision at this timeand the Department has not beenprovided with sufficient information toreasonably support a change.

L. Comments Related to Section 226.19

One commenter requested thatSection 226.19 be clarified to providethat the Superintendent must complywith the rulemaking notice andcomment process before theSuperintendent may publish new gravityadjustments "based on substantialevidence, that market conditions sowarrant."

No changes are necessary in responseto this comment because actions of theDepartment must comply with theAdministrative Procedure Act.Moreover, it is uncertain whether or notthe Superintendent would publish newgravity adjustments in the future orwhat process the Superintendent wouldfollow to do so. If and when that occursin the future, any final decision may bechallenged in accordance with theAdministrative Procedure Act.

One commenter suggested that theDepartment of the Interior should notallow any exceptions or deductions thatare not specifically permitted by the1906 Act or other applicable laws.

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It is unclear whether this commenterwas referring to deductions for oil(Section 226.19) or gas (Section 226.20).Regardless, the only deductionallowance for royalty paid on oil isbased on a gravity adjustment. SeeSection 226.19. No deductions areallowed for royalties paid on residue gasproduced on a lease, and the onlydeduction allowed for royalties onnatural gas are the "reasonable cost forprocessing not to exceed 50 percent ofactual sales value of natural gas liquidsproduced from the lease (including dripcondensate)." See Section 226.20(c).

M. Comments Related to Section 226.20

One commenter noted that 226.20(a),which provides that royalties would beassessed and measured before watervapor is removed from the gas and thegas is in a marketable condition, andasserts that this would artificially inflatemeter volumes without increasing thevolume of gas produced.

The Department is confused by thiscomment because nowhere does 226.20state that gas volumes must bedetermined prior to removing watervapor. It is assumed that the commenterwas actually referring to 226.20(b). Therequirement in 226.20(b) was added toprohibit adjustment to the measuredvolume of gas for assumed water vaporcontent. This requirement does notprohibit the physical removal of watervapor or placing the gas into marketablecondition prior to measurement,however. We agree with the commenterthat the wording was unclear and havechanged the wording in 226.20(b) toclarify this and have also added specifictechnical requirements that werepreviously missing to addresscalculating the heating volume of gas toaid the lessee in complying with thissection.

One commenter stated that Section226.20(c) establishes a dual accountingsystem, but the use of a dual accountingsystem to calculate gross proceeds is anissue that is more properly addressedand negotiated by the Nation and thelessee in the lease document at the timeit is signed. Empowering theSuperintendent to change thiscalculation system on such short noticeintroduces substantial uncertainty intothe calculation of royalties,discouraging prospective lessees fromentering into agreements with theNation.

The Department disagrees with thiscomment. The Department did find thatthe reference for dual accounting in theproposed rule (30 CFR 1206.173) wasincorrect and has added the correctreference (30 CFR 1206.180(a)-(b)).However, the purpose of the provision

is so that if the actual reasonable cost ofprocessing as required by this sectioncannot be determined, the lessee isrequired to perform the accounting forcomparison (dual accounting) asoutlined in 30 CFR 1206.180(a)-(b). Onother Indian and Federal lands outsideof Osage County, approval for thealternative methodology rests withONRR, not the tribe. In Osage County,unless otherwise delegated, ensuringcompliance with those same provisionsis now vested in the Superintendentbecause this rule makes them applicableto Osage. In all cases, the application ofalternative methodologies foraccounting are directly tied to the lackof transparency of processing costs andan inability to determine those costs forallowance purposes. The requirementdoes not interfere with any agreementsthe lessee has or will make.

One commenter asserted that Section226.20 requires a double royalty to bepaid where gas produced from one wellis used for lift purposes on anotherwell-solely because it passes the pointof metering on both wells-anddisagreed with this, noting that it iswidely accepted that gas used on-site forbeneficial purposes of the lease is notroyalty-bearing and this proposal wouldrun counter to that principle.

Section 226.20 requires only that allgas removed from the lease be meteredbefore removal and subject to a royaltyof not less than 20 percent, unlessotherwise approved. That regulationensures that the Osage get royalty forany gas moved off the lease site, even ifit is used for operations at anotherlocation. The regulation does notprohibit gas developed from a lease sitefrom being used for operations on thesame lease site. On the other hand,Section 226.63 does require that all gasbe measured in accordance with BLMOnshore Oil and Gas Order 5, to ensurethat all gas that is required to bemeasured is properly accounted for, butroyalty payments on gas are controlledby Sections 226.20, 226.21 & 226.22.

A commenter expressed support forthe attempt to provide for a royalty onresidual and other marketable productsand urged that the meaning of therelevant calculation be made clear.

The Department is not certain itunderstands this comment, but notesthat the determination of royalty onother marketable products is explainedin Section 226.23, which is a provisionthat was contained in the priorregulations, but revised in the final ruleto clarify that royalty due on othermarketable products is in addition toany royalty that may be due on oil andgas in accordance with the regulations.

N. Comments Related to Section 226.25

At least one commenter suggestedthat the due date for royalty paymentsdoesn't need to be changed toaccommodate any entity other than theBureau.

The due date for royalty was changedto make it consistent with the date thatroyalty payments are due to the ONRR,in the event that the Secretary delegatesroyalty collections and audits to ONRRto aid the Bureau in its management andadministration of the Osage mineralestate. ONRR has the capacity toprovide assistance to the Bureauwithout the Bureau having to duplicateservices that ONRR already provides onother Indian and Federal lands.

0. Comments Related to Section 226.27

At least one commenter objected toSection 226.27(a)(2), which requires theSuperintendent to approve all divisionorder and sales contracts beforeproduction may "be removed from theleased premises." It was suggested thatthis provision would impose asubstantial administrative burden onthe Bureau when they already facebacklogs and uncertain funding.

Section 226.27(a)(2) was notsubstantively changed through thisrulemaking, but was renumbered (fromSection 226.14(a) in the old regulationsto Section 226.27(a)(2)) and reformattedfor readability only. Issues relating tostaffing and funding are also outside thescope of this rulemaking, although theBureau has worked with the OsageAgency over the last few years toaddress budget shortfalls and staffingneeds.

P. Comments Related to Section 226.29

At least one commenter objects to theprovision in Section 226.29(a) thatrequires lease assignments to beapproved by both the Superintendentand the Osage Minerals Council becauseno procedure or standard is specifiedfor obtaining those approvals orappealing the decisions. It is also notclear what happens if there is adisagreement between theSuperintendent and the MineralsCouncil.

The regulations have always requiredlease assignments to be approved byboth the Osage Minerals Council andthe Superintendent. This rule does notchange that requirement, but deletes theprovision allowing lessees to assignseparate horizons because theDepartment found, in reviewing therule, that such assignments do notgenerally occur at Osage and when theydid, they were so administrativelyburdensome that the Agency could not

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monitor those assignments. As a generalmatter, the Minerals Council is theentity that enters into and approves allleases and assignments in accordancewith their governing authority andprocedures. Once the Minerals Councilapproves a lease or lease assignment, itis submitted to the Superintendent forfederal review and approval. Any finaldecision of the Superintendent isgoverned by 25 CFR part 2 and theAdministrative Procedure Act.

Q. Comments Related to Section 226.33

One commenter requested that thereshould be additional restrictions toprotect natural resources and publicsafety and the restrictions shouldprovide sufficient detail to allow lesseesto comply and the Bureau to enforce.The commenter also suggested that bestmanagement practices should bedeveloped to protect wildlife and othernatural resources.

This comment is already addressed inSection 226.33 of the final rule, whichrequires that lessees conduct alloperations in a manner that protectsother natural resources andenvironmental quality and protects lifeand property while also balancing thoseresponsibilities with the requirement tomaximize production of oil, gas andother marketable products. Sections226.44-226.45 also provide additionalprotections for the prevention ofpollution and environmental concernsand were added in response to similarconcerns raised during the negotiatedrulemaking process. To the extent thatthe commenter desires the Bureau todevelop best management practicesoutside the regulations, those commentsare beyond the scope of the rulemaking.However, the Bureau is currentlyengaged in a process with the U.S.Environmental Protection Agency (EPA)to revise and update an existing OsageLessees Manual that addressesenvironmental protection and response,including best management practices.The Osage Minerals Council, OsageNation, State of Oklahoma, lessees, andsurface owners were involved in thepublic listening sessions as part of thatprocess. Moreover, the rule does notreplace other applicable environmentallaws or regulations and EPA isresponsible for overseeing certainaspects of oil and gas operations withinOsage County.

R. Comments Related to Section 226.34

One commenter noted that the Bureaushould not approve a lease, installation,permit or other activity until anenvironmental impact assessment hasbeen completed and any issues havebeen resolved. To that end, the Bureau

should regularly consult with Federal,State, and local wildlife agencies toreduce conflicts between wildlifeconservation and oil and gasproduction.

Notwithstanding the regulations, theBureau is required to ensure compliancewith the National Environmental PolicyAct (NEPA), 42 U.S.C. 4321 et seq.Further, Section 226.5(d) makes clearthat before approval of each oil and/orgas lease and activities and installationsassociated therewith must be assessedand evaluated for its environmentalimpact. Although the Bureau alreadyundertakes environmental reviewsbefore approving certain actions,Section 226.34 has been furtheramended to expressly note that theNEPA is part of the environmentalcompliance review and must becompleted before the Superintendentmay grant authority under a lease toconduct certain operations.

S. Comments Related to Section 226.35

At least one commenter suggestedthat Section 226.35 as written appearsto reverse the ancient rule that thesurface estate is subservient to thesubsurface/mineral estate, therebygiving the surface owner a veto overmineral development. In particular,paragraph (b) only provides that theSuperintendent will endeavor to bringthe parties to terms so that a lessee maydevelop on a restricted homestead andthis is different than allowing the lessorto enter upon surface lands and utilizesubsurface rights and would delaydevelopment. Additionally, paragraph(c) provides that when no agreementbetween a surface owner and lessee canbe reached for surface usage, theMinerals Council can make a finalbinding decision, but this paragraphdoes not include a requirement that theMinerals Council recognize the legalsubservience of a surface owner's rightor take into account the reasonablenessof the lessee's request, or applystandard methods of valuation to theinterests being adjudicated. Thiscommenter notes that it is also unclearwhat appeals rights a lessee has to suchdeterminations.

Section 226.35 (previously numbered226.17) was not substantively changedin the rule. References to the "OsageTribal Council" to the "Osage MineralsCouncil" were changed because theOsage Tribal Council no longer existsand it is the Osage Minerals Councilthat oversees the Osage Mineral Estate.Moreover, Section 226.35 governs theuse of restricted homestead and not allsurface lands within Osage County. TheBureau has a unique role with respectto operations that occur on a restricted

homestead and this section ensures thatthe appropriate procedures are followedto enable the Bureau to participate in adecision impacting the restrictedhomestead in order to protect therestricted surface owner to which theUnited States has a trust responsibility,but those provisions do not change thelegal principles related to the surfaceand subsurface mineral estate that areapplicable in Osage County.

T. Comments Related to Section 226.36

One commenter stated that Section226.36 should also require that nooperations may begin until the lesseecan meet and negotiate in good faithwith the surface owner to ensure thehealth and safety of the lessee and thehealth and safety of others using theState's wildlife management area.

No change has been made in responseto this comment. Section 226.36 onlyrelates to commencement of operations,and Section 226.33 of the rule providesthat lessees are required to comply withall applicable laws and regulations,including protecting natural resourcesand environmental quality, and life andproperty during their operations. To theextent a surface owner believes that alessee is engaged in operations that areharmful to the health and safety ofhumans, such actions should bereported immediately to the properauthorities and the Bureau maintains a24-hour hotline for such purposes.

One commenter disagreed withprovision allowing the Superintendentto set routes of ingress and egress inSection 226.36(b)(2) if no agreementbetween lessee and surface owner canbe made and suggests using an unbiasedalternative decision maker.

In response to comments, we havefurther revised Section 226.36(b)(2) toallow both the surface owner and thelessee to meet with and submitinformation regarding such routesbefore a final determination is made.This will allow for the consideration ofrelevant parties before making adetermination, which provides addedprotection for all parties.

At least one comment was receivednoting that it is not clear how Section226.36(b), requiring the lessee to meetwith the surface owner or his/herrepresentative, is met when there aretracts with multiple or numeroussurface owners. The commenterproposes that the Bureau qualify thatthis provision is met by meeting with themajority owner(s).

No change has been made in responseto this comment. A particular leasecould include multiple tracts of landthat are owned by different surfaceowners and the owners of each surface

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estate must be separately met with toensure proper notice and due process.

U. Comments Related to Section 226.37

Some commenters suggested requiringlessees to meet prior to operations andenter into a written surface useagreement to address, among otherthings: (a) Identify and limit the sizeand locations of well pads, roads,pipelines and power lines; (b) govern thetiming and scope of operations tominimize disturbance to landowner'soperations; and (c) outline reclamationand clean up obligations. In addition,some of these commenters suggestedthat lessees should adhere to BLM bestpractices and that any dispute shouldbe governed by arbitration.

Section 226.36(a) already requires thelessee to notify or attempt to notifysurface owners prior to commencementof certain operations and Section226.36(b) requires that lessee request ameeting with surface owners to provideinformation regarding location of wells,route of ingress and egress and contactinformation for damage claims. Inresponse to comments, however, theDepartment has added a requirement toSection 226.36(b)(2), which requiresthat in the event that the surface ownerand lessee cannot agree on a route ofingress or egress, both the surface ownerand the lessee will be notified by theSuperintendent and provided with anopportunity to meet and/or to submitany information in conjunction withthat process. In addition, Section226.37, governing use of surface lands,already provides standards for surfaceuse without the need for an additionalrequirement of surface use plansbetween the surface owner and lessee.The rule has always implicitly providedthat the lessee and surface owner shouldwork together regarding locations ofwell pads, roads, pipelines and electriclines and expressly provides a processfor the routing of rights-of-waysincluding, for example, pipelines andelectric lines, in the event that thesurface owner and lessee cannot agreeon a particular route. However, inresponse to comments, the Departmenthas also added a requirement to Section226.37(a) (similar to Section226.36(b)(2)) to provide that theSuperintendent will notify or attempt tonotify both the surface owner and lesseeand provide them with an opportunityto meet and/or to submit anyinformation in conjunction with thatprocess. In addition, Section 226.38provides limitations regarding the sizeof drilling sites that lessees must followin conducting operations.

A commenter suggested that Section226.37(c) should also include a clause

specifying the lessee's operationalobligations be expanded beyond"workmanlike manner" to includeavoiding waste, degradation ofenvironmental quality, avoidablenuisance, threats to public safety andhealth.

The rule sufficiently addresses thiscomment without requiring a change toSection 226.37(c). Section 226.37governs the use of surface landsgenerally, but is not the only provisionin the regulation regarding a lessee'sduties and obligations. Section226.33(a)(2)-(3) already requires thatthat the lessee conduct operations in amanner that protects other naturalresources and environmental qualityand that protects life and property.Section 226.44 further specifiesrequirements that lessees must follow toprevent pollution, and Section 226.45delineates lessee's other environmentalresponsibilities. In addition, Section226.46 provides that a lessee mustperform all operations and maintainequipment in a safe and workmanlikemanner and take all precautionsnecessary to provide adequateprotection for the health and safety oflife and the protection of property.

V. Comments Related to Section 226.38

Some comments were receivedobjecting to the amount ofcommencement money in Section226.38 as grossly inadequate and statingit should be significantly increased tofairly compensate landowners forimmediate and long term impacts andloss of land as a result of well pads,roads, pipelines, power lines, tanks andother infrastructure and operations.

Commencement money is notintended to compensate surface ownersfor all damages to land as a result of oiland gas operations. Rather, it isintended to provide an upfront paymentto surface owners that will be creditedtowards future damages. The rule has aprocess in Section 226.40, by whichsurface owners may seek additionaldamages. A number of commenters alsoraised concerns that increasedcommencement fees would be overlyburdensome to smaller lessees.However, the commencement fees areintended to provide all surface owners,regardless of whether the lessee is asmall or large producer, with the sameup front compensation for the initial useof surface lands. During the rulemakingthe Committee heard from many surfaceowners that the amount ofcommencement money was inadequateto the surface cover damage the surface.Thus, there is a need to balance theseconcerns while ensuring that surfaceowners are treated equally and receive

some measure of compensation beforethey are able to recover damages foractual impacts to the surface as a resultof oil and gas operations. An increase incommencement fees in conjunctionwith the ability of surface owners tocontinue to recover full damages strikesthis balance.

At least one commenter suggestedthat no geophysical, geologicexploration or surveying or stakingactivities be allowed without the lesseeentering into a written agreement withthe surface owner regarding seismicactivities.

Section 226.38 governscommencement of operations andprovides that a lessee may commenceoperations, including seismic activities,once the commencement fees are paidin accordance with that section. Thissection in particular, has been revisedfrom the previous regulations toincrease the fees in response to surfaceowner comments during the negotiatedrulemaking process, but the majority ofthe section was not revised. TheDepartment found that there wasdiscussion during the negotiatedrulemaking with respect to the conceptof requiring some kind of a surface useagreement before operations couldbegin, but ultimately the Committee didnot propose that approach. Based on therecord, the Department believes the rulecontains sufficient standards governingthe use of surface lands (Sections226.36(b) & 226.37), includingprovisions aimed at ensuring thatsurface owners are notified ofoperations (Section 226.5(c); Section226.36; 226.38(b)) and have theopportunity to participate in the processwhere applicable. See e.g., Section226.37(a). In addition, the rulecontinues to allow surface owners toseek compensation for damages causedby operations and provides anarbitration process to settle disputesbetween surface owners and lessees. SeeSection 226.40.

Some comments were receivedrequesting that the Bureau recognizethat a surety performance bond isgenerally required by the surface ownerprior to conducting oil and gasactivities-a requirement that isapplicable in the State of Oklahomaunder State law.

Oil and gas operations within OsageCounty are governed by federal law,including the 1906 Act and itsimplementing regulations. Under therule, Section 226.38 requirescommencement fees, rather than asurety performance bond, be paid tosurface owners before operations maybegin. During the negotiated rulemakingin response to public comment, the

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Committee agreed to propose increasesin the amount of commencement moneydue and this rule adopts thoserecommendations. Moreover, theregulations have always provided thatthe lessee and surface owner mustnegotiate settlement of damages aftercommencement of operations and theseprovisions remain unchanged in thefinal rule.

At least one comment was receivedobjecting to the increase commencementfees in Section 226.38(a) on the basisthat it will only destroy small lesseeswho work in an old oil field.

No evidence was submitted to supportthis comment. Further, this issue wasdiscussed during the NegotiatedRulemaking Committee and this changewas made in response to surface ownercomplaints regarding damages andlessee complaints regarding access. Inparticular, the Negotiated RulemakingCommittee explained that the increasein the commencement fee from $300 to$2,500 was made because $300 is anoutdated amount and is creatingdevelopment issues between the surfaceowners and lessees, as evidenced by therecurring issue in Osage County ofsurface owners blocking lessee access tolease sites because they believe thecommencement fees are insufficient.Thus, the Committee increased thecommencement fee to $2,500 to helpmitigate this issue and believed it is afair amount that would be applied tofuture damages, while at the same timebalancing concerns of surface ownerswho are concerned about immediatedamages to their surface estate.Committee members agreed that this feeshould be paid before beginningoperations, not at the time of permitting.

W. Comments Related to Section 226.39

A commenter suggested that Section226.39, re: tank fees, be folded into thecommencement money provision atSection 226.38(a).

Commencement money is notintended to cover fees for the siting oftanks. At the time that a lesseecommences operations, he or she maynot know how many tanks will be sitedon the well site. Section 226.39 providesthat when a tank is sited on a well site,the lessee will pay the requisite fees inaccordance with that section. Thisprovision ensures that the surface ownerwill be compensated for the siting of atank at the time they are placed on awell site, while allowing the lessee tobegin operations after the payment ofcommencement fees and before he orshe may know how many tanks will beplaced at the well site.

X. Comments Related to Section 226.40

One commenter noted that in his/herview, Section 226.40(a), regardingcompensation to surface owners fordamages encompassing "all othersurface damages as maybe occasionedby operations," is open-ended andcould result in needless confrontationsor litigation. The commenter suggestsnarrowing the provision to provide fordamages to "growing crops [and] anyimprovements on the lands."

Section 226.40(a) was not changedsubstantively from the prior regulations(original 226.20(a)). Moreover, thiscomment contradicts the purpose of thedamage provisions in the rule, whichare intended to be broad enough tocover any claims for damages that asurface owner may have against a lessee.The provision is not intended to take aposition on whether a particular claimfor damages does or does not havemerit, but allows for such issues to beworked out between the surface ownerand the lessee.

Y. Comments Related to Section 226.41

At least one commenter suggestedthat damage claims should be settled bythe terms of surface use agreements andthen, secondarily, by arbitration inSection 226.41.

For the reasons stated in responses toother comments, the rule does notrequire a surface use agreement. Therule does provide for a surface owner tobe compensated for damages as a resultof operations and arbitration may besought if issues between the surfaceowner and lessee cannot be resolved.Nothing in the rule prohibits the surfaceowner and lessee from discussing issuesrelated to operations early in the processto minimize disagreements.

Z. Comments Related to Section 226.45

Some commenters raised concernsthat the proposed regulations fail toprotect the land, environment, publichealth and safety and property rights ofsurface owners and suggested languageto expand environmental protections.

This comment was addressed duringthe negotiated rulemaking and there isno need to further revise the rule. Inresponse to similar public commentsduring the negotiated rulemaking, theCommittee proposed, and theDepartment is enacting in the final rule,several new provisions aimedspecifically at protection of the land,environment, and public health andsafety. Those provisions include, forexample, clarifying and specifying thelessee's environmental responsibilitiesand obligations while conductingoperations (Section 226.45), adding

compliance with BLM Onshore Oil andGas Order 6 regarding H2S safety(Section 226.60(f)), adding requirementsfor ensuring well safety (Section226.60(b)-(e)), site security (Section226.65), and safety standards for lesseeoperations and equipment (Section226.46). Moreover, the regulations havealways had provisions regardingdamages to surface lands and anarbitration process for resolvingdisputes that remain in the rule. It isrelevant to note that one commenterspecifically noted that the proposed ruledoes provide protections for the surfaceowner, for example, Section 226.38requires lessees to remit a $2,500commencement fee for each well drilledwhich is credited to the final settlement,and is an increase from the past rule ofonly $300. In addition, the payment ofcommencement fees does not affect thesurface owner's ability to seekadditional monies for damages andSection 226.40 allows a surface ownerto seek additional monies for damages.Specifically, Section 226.41 provides foran impartial arbitrator to resolve issuesand allows for arbitration awards to bechallenged in a court of competentjurisdiction. Lastly, all Osage leasesrequire the lessee to conduct operationsconsistent with a prudent operatorstandard and failure to abide by thatstandard or regulations specificallyaimed at protecting the environment cansubject the lease to termination underSections 226.67 and 226.68.

AA. Comments Related to Section226.46

A commenter suggested that a specificreference in Section 226.46 be made toprohibit leaving REDA cable on theground.

The Department agrees that there is aneed to address this issue, and hasfurther revised Section 226.46 toinclude a provision requiring lessees tocomply the National Electric Code withregard to the running and maintenanceof electrical lines to ensure thatminimum standards are required.

BB. Comments Related to Section226.47

A commenter suggested that inSection 226.47, the granting ofeasements for wells off the leasedpremises be at the consent of surfaceowners as well as the Osage MineralsCouncil.

The Department disagrees with thiscomment. However, the Departmentdoes agree that a surface owner shouldbe able to submit information as part ofthe process and has revised Section226.47 to provide that theSuperintendent will notify or attempt to

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notify the affected surface owner(s) andprovide an opportunity to meet and/orsubmit information before an easementis granted.

CC. Comments Related to Section226.48

Several comments were receivedasserting that all of the surface waterwithin Osage County belongs to theState of Oklahoma, so all permits forsurface and groundwater should bestopped.

Section 226.48 governs the use ofsurface water and was not substantivelychanged as part of this rule. Theownership of surface water is a legalquestion that does not need to be, andcannot be, resolved as part of thisrulemaking process.

Several comments were receivedsuggesting that Section 226.48 in itscurrent form authorizes the un-permitted use of surface water in OsageCounty and, in effect, the regulationpurports to preempt the State ofOklahoma's regulatory authority. Thesecomments propose amending Section226.48 to state that Oklahoma lawapplies to all uses of water within OsageCounty. These commenters also suggestthat all use of water must be permittedby the State, including use in oil and gasexploration, production or otheroperations otherwise shortages couldoccur for those using the same watersource pursuant to an Oklahoma WaterResources Board permit.

As noted above, Section 226.48governs the use of surface water andwas not substantively changed as part ofthis rule. The ownership of surfacewater is a legal question that does notneed to be, and cannot be, resolved aspart of this rulemaking process.Comments were also received expresslydisputing any comments asserting thatall water use is subject to State law andthis commenter notes that the OsageNation's ownership and regulatorycontrol of reserved waters within OsageCounty is a historical fact and withoutquestion, which is made clear by thecreation of the Osage Reservation in1872 and the Osage Mineral Estate in1906. This comment further supportsleaving Section 226.48 unchanged;moreover Section 226.48 was originallycodified in 1974 and has remainedunchanged for over 40 years.

DD. Comments Related to Section225.53

A commenter suggested that a lessee'spermanent improvements and personalproperty should be removed from thesite when a well is abandoned, thatthere should be an upper limit ofperhaps three years up to which wells

can be "shut in," and that the lesseeshould remediate a site within 90 daysof well plugging.

These comments are adequatelyaddressed in the rule to the extentnecessary. Section 226.53(a) makes clearthat any permanent improvementsbecome the property of the surfaceowner and the only portion of thatprovision that was deleted was theexception for permanent improvementto become part of the surface whentermination of a lease is for somethingother than cause, because it did notmake sense to have such an exceptionas a legal matter. To the extent that asurface owner has been damaged by thesiting of a permanent improvement, theregulations have always contemplatedthat the surface owner would seekdamages in accordance with thedamages provisions. Section 226.53(a)also already requires that a lesseeremove all personal property within 90days of termination of the lease. And,Section 225.53(c) requires that a lesseemust plug all wells that are to beabandoned and Section 225.53(d)(4)requires that within 90 days of pluggingthe well, the lessee must clean up thepremises around the well.

EE. Comments Related to Section 226.56

One commenter requested that theBureau ensure that well records andsubsurface data required to be reportedin Section 226.56 be made accessible ina database to the public and be accurateto ensure that groundwater is properlyprotected. The commenter suggests thatall new wells should be logged and theelectronic logs should be required andincorporated into the database.

This comment is outside the scope ofthe regulations and relates to theinternal procedures for how the Bureaushould store information required to besubmitted under the regulations andhow such information is or can bedisseminated to the public. However,Section 226.60(e) already requires thelessee to protect freshwater fromcontamination and the Bureau willfurther consider this comment as itconsiders the development of a Web sitefor information related to oil and gasoperations within Osage County andevaluates the information that could beposted for the benefit of the publicconsistent with the Freedom ofInformation Act.

FF. Comments Related to Section 226.57A commenter suggested that in

Section 226.57, minimum setbacksbetween oilfield activities and boundarylines of leased land, public roads,watering places, and dwellings,granaries, and barns be increased.

This rule did not change Section226.57 and it remains substantively thesame as in the current regulations(previously found at Section 226.33).The Department also found a lack ofinformation submitted in conjunctionwith this comment justifying the need tohave an across the board minimumsetback beyond 300 feet of the leasedland boundary and 200 feet of publichighways, established watering places,dwellings, granaries and barns.Moreover, it is relevant to note thatSection 226.57 provides minimumsetbacks and the lessee and surfaceowner may further discuss the need foran increase in the setback in anyparticular circumstance.

GG. Comments Related to Section226.59

A commenter suggested that theBureau should undertake acomprehensive review and update of itsfreshwater data/maps and, until then,surface casing should be required to adepth 200 feet below that recommendedby the Bureau's current data/maps.

This comment does not relate directlyto the rule and no change to the rule isnecessary. Section 226.59 specifies thatthe lessee must take certain precautionsto prevent damage or pollution tofreshwater. The Department agrees thatthe Bureau should endeavor to workwith the best available data regardingfreshwater data and maps applicable inOsage County and it will work with theUnited States Geological Survey andEPA to ensure that it has the most upto date information. The Bureau mustreview and approve operationsconsistent with the best availableinformation it has available and itwould be arbitrary to require all surfacecasings to go to a depth greater than 200feet irrespective of the data andinformation available to the Bureau.Instead, Section 226.59 gives theSuperintendent broad authority to takenecessary steps to protect fresh water orother mineral bearing formationsdepending on particular circumstances.For example, in some instancesdepending on the hydrology in aparticular area, the Superintendent mayrequire surface casing to a depth greaterthan 200 feet. In other areas withinOsage County, the hydrology may besuch that freshwater and other mineralbearing formations are adequatelyprotected if surface casing are set at adepth less than 200 feet. Nothing in therule prohibits a person or entity fromsubmitting for consideration by theSuperintendent, information relating tothe depth of nearby residential waterwells that may require setting thedepths for a particular well deeper than

27013


shown on the best available maps thatthe Bureau has on file.

Some commenters suggested that, inSection 226.56(a) and/or 226.59, lesseesbe mandated to report freshwater welldrilling data to the Bureau and theOklahoma Water Resources Board, thatthe Bureau require water well testingwithin 2,000 feet of oil or gas wellbores,and that lessees be required to keepcement well logs for all cement jobsacross the freshwater zone.

This rule did not change Section226.59 and it remains substantively thesame (previously found at Section226.35). Further, Section 226.59 givesthe Superintendent broad authority toaddress these types of concerns on acase by case basis because theregulations allow the Superintendent totake necessary steps to protect freshwater or other mineral bearingformations depending on the particularcircumstances.

HH. Comments Related to Section226.60

A commenter suggested that wellcontrol requirements in Section 226.60are insufficient and that, instead, BLMOnshore Oil and Gas Order No. 2should be substituted.

No further revision to Section 226.60is necessary in response to thiscomment. Section 226.60 wasrecommended by the NegotiatingRulemaking Committee in an attempt tobalance the need to have additionalsafeguards for maintaining well controland the Committee specificallyreviewed and examined BLM rules andprocedures. The Department found thatthat section combines existing languagefrom the regulations with language fromBLM regulations governing well control.For example, paragraph (a) is text fromthe old regulations, but paragraphs (b)through (e) were adopted consistentwith BLM regulations regarding wellcontrol. The Department believes thatthese new provisions provide additionalprotections to ensure well control thathave not been in place before in OsageCounty. Moreover, if appropriate, underSection 226.3, in accordance with theAdministrative Procedure Act theBureau can adopt BLM's Onshore Oiland Gas Order No. 2 in the future.

Several commenters raised concernsregarding the venting of hydrogensulfide gas at any level, and the flaringof hydrogen sulfide in excess of 10 partsper million. Some of these commenterssuggested that if short term flaring mustbe slowed, the lessee should be requiredto use the best current flaringtechnology for the oil and gas industry,and any flaring of natural gas should bedone in a manner to eliminate the

visibility of the flame and a producedlight using a closed-combustionchamber system. Other commenterssuggested using current best industrystandards for flaring followingAmerican Petroleum Institute guidelinesand utilizing "clean burn variable tipflare" technology.

These comments are adequatelyaddressed in Section 226.60(f) of therule and no further change in necessary.Section 226.60(f) requires compliancewith BLM Onshore Oil and Gas OrderNo. 6. This Order identifies the Bureauof Land Management's requirementsand minimum standards of performanceexpected from operators whenconducting operations involving oil orgas that is known or could reasonably beexpected to contain hydrogen sulfide(H2S) or which results in the emissionof sulfur dioxide (S02) as a result offlaring H2S. This Order also identifiesthe gravity of violations, probablecorrective action(s), and normalabatement periods. In addition, theBureau has been working with EPA todevelop an Environmental ComplianceManual for Osage County and hasreceived comments from the public toinclude in that manual bestmanagement practices, including bestpractices for venting and flaringhydrogen sulfide gas.

I. Comments Related to Section 226.62

A commenter suggested that theDepartment should require moredetailed and timely reporting in both thefinal rule and in OMB-approved forms.This reporting would be offset by theDepartment requiring routineinspections of all withdrawals from tankbatteries and contemporaneousrecordation of all of the appropriatedata, periodic facility inspection, andspot inspection for compliance. Thecommenter also recommended thatinspections be performed by qualifiedBureau officers; that periodic, random,and risk-based inspections beperformed; and that the Bureau inspectall oil withdrawals.

The rule contains mechanisms thatallow the Bureau to more efficientlyperform inspections. For example, inSection 226.62(c), lessees are required togive notice to the Superintendent beforea purchaser is notified to remove a tankof oil to allow Bureau employees toperform periodic and randominspections to ensure accountability. Inaddition, under Section 226.63(c), alessee must provide 48 hour noticebefore a lessee calibrates or adjusts gasmeters. Osage County is approximately1.5 million acres and the Bureau cannotinspect all oil withdrawals or be atevery gas meter calibration, but the

notification system is intended toprovide a better system that will enableBureau employees to plan where theyshould be on any given day to ensurethat field inspections include areaswhere tanks are ready to be picked upby lessees or meters will be calibrated.The Department has determined that theadditional burden on the public ofrequiring more detail or increasedfrequency in reporting under thePaperwork Reduction Act is not clearlyjustified by any potential benefit. To theextent that the commenter suggests thatBureau employees be trained, suchcomments are outside the scope of therulemaking. However, the Departmentalemployees must meet certainqualifications before they are hired bythe Bureau and field inspectors areparticipating in the BLM's PETcertification training.

JJ. Comments Related to Section 226.63

Some comments were receivedsuggesting that wells on a lease alreadyhave a meter at the well or near thewellhead and requiring installation ofmeters at other locations is unnecessary.

The Negotiated RulemakingCommittee made the recommendationto adopt the standards in On-Shore Oiland Gas Order 5 because the regulationswere too vague and did not provideguidance to lessees for the measurementof gas. This has resulted in lesseesutilizing different standards for themeasurement of gas, which has causedconcern with respect to properaccounting of gas production and properpayment of royalties for gas. Ensuringproper measurement of gas was also anissue in the tribal trust litigation againstthe United States and was one of theissues that the Committee was taskedwith addressing in this rulemaking.Adoption of On-Shore Oil and GasOrder 5, in Section 226.63, nowspecifies uniform standards consistentwith how gas is measured on all otherIndian and Federal lands. In particular,On-Shore Oil and Gas Order 5 requireslessees to measure gas on the lease, unit,unit participating area or communitizedarea and that any measurements atlocations off the lease, unit, unitparticipating area, or communitized areamust be approved by theSuperintendent. To the extent that alessee already has installed meters ontheir lease consistent with On-Shore Oiland Gas Order 5, no changes will berequired. However, the Departmentbelieves this change is necessary tobring uniformity throughout OsageCounty in the measurement of gas andensure that it is fulfilling its trustresponsibility to the beneficiaries of theOsage mineral estate.

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Some comments were receivedsuggesting that the requirement inSection 226.62(c) to call the Bureauprior to running a tank of oil seems toserve no purpose. It was noted that if theintent is to inspect more runs, then thetribe will need to employ moreinspectors, if there is no intent toinspect then this is another futileexercise in useless record keeping.

The requirement that a lessee givenotice to the Superintendent before atank of oil is removed by a purchaserwas added by the NegotiatedRulemaking Committee to specificallyaddress concerns that the Bureau needsto more efficiently inspect and monitoroperations within Osage County inorder to verify accuracy of tank sales.Given that Osage County consists of 1.5million acres, the Department agreeswith the Committee that requiringnotice will enable it to better assesswhere field inspectors need to be on anygiven day to maximize the number ofinspections that can be done, ratherthan sending out field inspectors torandom locations in the hopes offinding tanks that are full and will bepicked up, as is the current practice.The Bureau has also created morepositions for inspectors within OsageCounty to address staffing shortfalls.During discussions on this topic in theNegotiated Rulemaking, it was notedthat lessees have to make calls to informa purchaser that a tank is ready and theDepartment determined that the burdenof calling the Bureau in addition to thepurchaser seemed minimal.

At least one commenter suggestedthat if the Bureau wants compliancewith the current regulations, it wouldrequest more funds to install electronicmonitoring of tanks.

This comment is outside the scope ofand does not relate to the rulemaking,rather it concerns internal budgetaryoperations.

KK. Comments Related to Section226.65

Some commenters noted thatimporting the requirements for sitesecurity plans that the BLM requires onother Indian and Federal lands will betoo labor-intensive to afford for smalllessees within Osage County.

The Department received numerouscomments regarding public safetyconcerns around well sites from surfaceowners and found that the site securityplan requirements were added by theCommittee to specifically address theseconcerns. Site security plans are notintended to be costly or labor intensiveand are generally required for oil andgas operations on all other Indian andFederal lands.

Several commenters noted that intheir view, the new requirement for sitesecurity plans is duplicative of the SPCCPlans required by the EPA.

The SPCC plans are required by theEPA and are submitted to the EPA onlyto prevent a spill of oil into navigablewaters or shorelines, whereas sitesecurity plans are required by theBureau and submitted for all oil and gasoperations to proactively address amultitude of public safety concerns. Forthese reasons, the site security plans arenot duplicative of the SPCC Plans. Thesite security plans will help promotelessee compliance with EPA'srequirement for SPCC plans regardingoil spills, because lessees will haveinformation more readily available fromthe site security plans to assist them incompleting an SPCC Plan.

Some commenters suggested that therequirement in site security plansrequiring that all valves have seals is"ridiculous," "arbitrary" and "totallyimpracticable" and that lessees can'tkeep records for six years. Others notedthat most lessees don't have themanpower or time to comply with thisrequirement and it would add costs thatcould force early abandonment.

No evidence has been presentedregarding estimated increased costs inrelation to this comment. The UnitedStates has a legal obligation to maintainrecords regarding operations for whichit is responsible. The Department mustbe able to go back for at least six yearsand collect documents and data relatedto operations because the statute oflimitations for damage claims on behalfof or against the Department is six years.Furthermore, the Department finds itrelevant that on all other Indian andFederal lands, the United States requireslessees adhere to minimum site securitystandards for oil and gas operations. Therequirements in Section 226.65 wereadded in response to concerns fromsurface owners regarding well sitesafety, as well as, from the members ofthe Osage Minerals Council, who wereconcerned with ensuring accountabilityof oil and gas production. In response tothese concerns, the provisions inSection 226.65(b) were added to providea minimum standard for ensuringaccountability regarding oil and gasoperations. The rule is intended to bringOsage County in line with minimumrequirements that are used on all otherIndian and Federal lands. Section226.65 mirrors the standard applicableto other Indian and Federal lands for oiland gas operations that is found in theBLM's regulations. In particular theDepartment finds paragraph (b)addressed concerns from the OsageMinerals Council relating to ensuring

that there are uniform safeguardsregarding accountability for oil and gasproduction within Osage County and itprovides transparency and ensures thatlessees are all following a minimumstandard. Additionally, the Departmenthas discovered through the negotiatedrulemaking process and publiccomments that there are genuineconcerns regarding well site safety andthe new requirement in Section226.65(c) will help with transparencyand ensure that lessees have a uniformstandard to comply with and are awareof their responsibilities.

At least one commenter noted thatsite security plans will not stop stealingin Osage County.

This comment does not suggest anychanges to the rule. However, theDepartment's intended purpose ofSection 226.65(b) is to provide aminimum standard to aid inaccountability of oil and gas productionand Section 226.65(c) adds newprotections regarding site security thathave not previously been required of alllessees.

Some commenters suggested thatsurface owners should be consultedregarding site security and proposed sitesecurity plans should be included insurface use agreements.

The Osage mineral estate is unique inthat the entire subsurface is held in trustby the United States for the benefit ofthe Osage Tribe. Notwithstanding that,the public, including surface owners,were able to participate in theNegotiated Rulemaking process and theCommittee added the site securityprovisions to the regulations in directresponse to surface owner concerns. Inaddition, the Department has neverrequired surface use agreements inOsage County, but there are provisionsfor the surface owner to work with thelessees and collect damages for use ofsurface lands. The Departmentencourages surface owners and lesseesto work together to address issuesrelated to surface lands.

LL. Comments Related to Section 226.66

A commenter suggested that lesseesbe required to report accidents, fires,theft, vandalism, and environmentalaccidents to the Superintendent, thesurface owner(s), and law enforcement(in case of theft) within one businessday of discovery.

In response to this comment, theDepartment has further revised Section226.66 (previously numbered 226.41) torequire that, in addition to requiringlessees to report fires, theft, andvandalism, lessees also reportenvironmental accidents to theSuperintendent and within one business

27015


day after discovery provide notice tolocal law enforcement agencies andinternal company security. Therevisions also require the lessee toprovide or attempt to provide notice tothe surface owner or the currentresident/occupant in writing by U.S.mail of any such incidents.

MM. Subpart F (226.67 to 226.70)

One commenter recommendedincluding a requirement that all sumsdue be paid to the Bureau.

This comment is outside the scope ofthe regulatory process. The Anti-Deficiency Act, 31 U.S.C. 1341, requiresthat fees and penalties be transmitted tothe United States Treasury. Absentspecific legislation to the contrary, theOsage Agency must comply with theAnti-Deficiency Act and remit fees andpenalties to the United States Treasury.

Some commenters noted that fines inSubpart F of the Rule should be paid tothe shareholder/headright owner andnot the Bureau of Indian Affairs.

The Bureau does not keep fines thatare collected, but is required to transmitthose to the United States Treasury inaccordance with the Anti-DeficiencyAct.

Some commenters suggested thatheavy fines will make Osage a lessattractive place.

Fines are not mandatory, but are onlyimposed when a lease is not operatingin accordance with the regulations.Fines are intended to deter violationsand encourage lessees to comply withthe regulations.

A commenter suggested that a penaltyof $1,000/day should be levied forenvironmental pollution.

The Department has decided not tochange the fines and penalties section ofthe rule and the fines and penalties asstated in the prior regulations remainintact, unless otherwise set forth in alease. To further encourage lessees tocomply with the regulations, theDepartment has, however, deleted theprovision in 226.67 allowing the OsageMinerals Council to waive late fees.

NN. Abandoned Wells

Some comments regarding abandonedwells, abandoned pump-jacks andexposed pipes on land noted that theseconditions cause damage and a hazardand stated that the existingrequirements to clean-up abandonedwells needs to be enforced.

To the extent that these comments canbe addressed by the rule, theDepartment has further revised Section226.46 to include a provision requiringlessees to comply with the NationalElectric Code with regard to the runningand maintenance of electrical lines to

ensure that minimum standards arerequired. If surface owners or othershave concerns regarding exposed pipesor other health and safety issues theymay contact the Bureau through itsreporting hotline at 1-855-495-0373.Surface owners can contact OERB at 1-800-664-1301 and consistent with theirprocess, OERB can remediateabandoned well sites in Osage County.

V. Procedural Requirements

A. Regulatory Planning and Review(E.O. 12866 and 13563)

Executive Order (E.O.) 12866 providesthat the Office of Information andRegulatory Affairs (OIRA) at the Officeof Management and Budget (OMB) willreview all significant rules. OIRA hasdetermined that this rule is notsignificant.

E.O. 13563 reaffirms the principles ofE.O. 12866 while calling forimprovements in the nation's regulatorysystem to promote predictability, toreduce uncertainty, and to use the best,most innovative, and least burdensometools for achieving regulatory ends. TheE.O. directs agencies to considerregulatory approaches that reduceburdens and maintain flexibility andfreedom of choice for the public wherethese approaches are relevant, feasible,and consistent with regulatoryobjectives. E.O. 13563 emphasizesfurther that regulations must be basedon the best available science and thatthe rulemaking process must allow forpublic participation and an openexchange of ideas. We have developedthis rule in a manner consistent withthese requirements. This rule is alsopart of the Department's commitmentunder the Executive Order to reduce thenumber and burden of regulations andprovide greater notice and clarity to thepublic.

B. Regulatory Flexibility Act

The Department of the Interiorcertifies that this rule will not have asignificant economic effect on asubstantial number of small entitiesunder the Regulatory Flexibility Act (5U.S.C. 601 et seq.).

C. Small Business RegulatoryEnforcement Fairness Act

This rule is not a major rule under 5U.S.C. 804(2), the Small BusinessRegulatory Enforcement Fairness Act. Itwill not result in the expenditure byState, local, or tribal governments, in theaggregate, or by the private sector, of$100 million or more in any one year.The rule's requirements will not resultin a major increase in costs or prices forconsumers, individual industries,

Federal, State, or local governmentagencies, or geographic regions. Nor willthis rule have significant adverse effectson competition, employment,investment, productivity, innovation, orthe ability of the U.S.-based enterprisesto compete with foreign-basedenterprises because the rule is limited tomanagement and administration of theOsage mineral estate.

D. Unfunded Mandates Reform Act

This rule does not impose anunfunded mandate on State, local, ortribal governments or the private sectorof more than $100 million per year. Therule does not have a significant orunique effect on State, local, or tribalgovernments or the private sector. Astatement containing the informationrequired by the Unfunded MandatesReform Act (2 U.S.C. 1531 et seq.) is notrequired.

E. Takings (E.O. 12630)

Under the criteria in Executive Order12630, this rule does not affectindividual property rights protected bythe Fifth Amendment nor does itinvolve a compensable "taking." Atakings implication assessment istherefore not required.

F. Federalism (E.O. 13132)

Under the criteria in Executive Order13132, this rule has no substantial directeffect on the States, on the relationshipbetween the national government andthe States, or on the distribution ofpower and responsibilities among thevarious levels of government.

G. Civil Justice Reform (E.Q. 12988)

This rule complies with therequirements of Executive Order 12988.Specifically, this rule has been reviewedto eliminate errors and ambiguity andwritten to minimize litigation, and iswritten in clear language and containsclear legal standards.

H. Consultation With Indian Tribes(E.O. 13175)

In accordance with the President'smemorandum of April 29, 1994,"Government-to-Government Relationswith Native American TribalGovernments," Executive Order 13175(59 FR 22951, November 6, 2000), and512 DM 2, we have evaluated thepotential effects on federally recognizedIndian tribes and Indian trust assets.This rule was developed by negotiatedrulemaking with representatives of theaffected tribe.

L Paperwork Reduction Act

This rule includes informationcollections requiring approval under the

27016


Paperwork Reduction Act (PRA), 44U.S.C. 3501 et seq. These informationcollections have not been approvedpreviously because the last update to 25CFR 226 was prior to amendments tothe PRA subjecting these informationcollection requirements to OMBapproval. In the Federal Register ofAugust 28, 2013, the Departmentpublished the proposed rule and invitedcomments on the proposed collection ofinformation. The Department submittedthe information collection request to theOffice of Management and Budget(OMB) for review and approval. TheOMB did not approve this collection ofinformation, but instead, filed comment.In filing comment on this collection ofinformation, OMB requested that, beforepublication of the final rule, theDepartment provide all comments onthe recordkeeping and reportingrequirements in the proposed rule, theDepartment's response to thesecomments, and a summary of anychanges to the information collections.We did not receive any publiccomments regarding the informationcollection burden estimates in responseto publication of the proposed rule inthe Federal Register; however, some of

the comments on the rule related toinformation collections in sections226.65 and 226.66. In response tocomments on 226.66, the final rulespecifies that reports of theft must occurwithin one business day of discovery,rather than "promptly" and the finalrule adds a requirement to notify thesurface owner under this section. Thenew requirement to notify the surfaceowner resulted in a small increase in thenumber of responses (14,436, ascompared to the proposed estimate of14,414) and hour burden (21,954, ascompared to the proposed estimate of21,932).OMB has approved the information

collections in this final rule andassigned it OMB Control No. 1076-0180. This approval will expire on 03/31/2018. Questions or commentsconcerning this information collectionshould be directed to the person listedin the FOR FURTHER INFORMATIONCONTACT section of this preamble.OMB Control Number: 1076-0180.Title: Leasing of Osage Reservation

Lands for Oil and Gas Mining, 25 CFR226.

Brief Description of Collection: Thispart contains leasing procedures and

requirements and rental, production,and royalty requirements for leasing thereservation lands of the Osage Nationfor oil and gas mining. The Secretarymust perform the information collectionrequests in this part to obtain theinformation necessary to completeleasing transactions and monitor leasedproperty. Responses to theseinformation collection requests arerequired to obtain a benefit (e.g.,commercial transactions).

Type of Review: New informationcollection.

Respondents: Indians, businesses, andtribal authorities.

Number of Respondents: 965.Frequency of Collection: On occasion.Estimated Hours per Response:

Ranges from 15 minutes to 8 hours (seetable below).

Estimated Total Annual Responses:14,436.

Estimated Total Annual BurdenHours: 21,954.

Non-Hour Cost Burden: $496.The table showing the burden of the

information collection is includedbelow for your information.

Hourly TotalHourly annualSection Information collection Respondents responses burden per hourlyresponse burden

226.5 .............................226.9 .............................226.13 ...........................

226.26, 226.27(a) .........

226.27(b) ......................

226.28 ...........................

226.29 ...........................

226.34(b), 226.52 .........

226.36 ...........................

226.40, 226.41 ..............

226.43 ...........................

226.45(d) ......................

Lessee must submit completed lease form .......Lessee m ust subm it bonds ................................Corporate lessee must submit evidence of its

officers' authority to execute papers and acopy of its Articles of Incorporation.

Lessee must provide certified monthly reportscovering operations and on value of all oil/gas used off premises for development andoperation.

Purchaser of oil or gas to furnish statement ofgross barrels of oil or gross Mcf of gas soldand sales price per barrel or gross Mcf duringthe preceding month.

Submit agreement to unitize or terminate unit-ization of oil or gas leases to Secretary.

Submit assignment or transfer of lease to Sec-retary.

Lessee must submit applications on BIA formsfor well drilling, treating, or workover oper-ations, removing casing from well. Applicationto shut down or plug well, with justification.

Lessee must notify and request meeting withsurface owners by certified mail, provide copyto Superintendent, and provide info at meet-ing.

Any person claiming an interest in the leasedtract or in damages must provide a statementshowing the claimed interest.

Drivers must carry documentation showing theamount, origin and intended first purchaser ofthe oil or gas or marketable product.

Lessee must submit a contingency plan, whenrequired.

160160150

8,400

540

1

500

600

160

60

160

8080

*38

4,200

270

1

250

4,800

160

30

800

27017

27018 Federal Register/Vol. 80, No. 90/Monday, May 11, 2015/Rules and Regulations

Hourly Totallurly pannualSection Information collection Respondents responses burden per hourlyresponse burden

226.54 ........................... Lessee must keep a full and correct account of 700 700 1 700all operations, receipts, and disbursementsand make reports thereof, as required, makeavailable for inspection, and maintain for 6years.

226.56 ........................... Lessee must keep records of drilling, redrilling, 700 700 1 700deepening, repairing, treating, plugging orabandonment of all wells and furnish reportsas required in manner and method specifiedby Superintendent.

226.56 ........................... Lessee must transmit to Superintendent appli- 700 700 8 5,600cable information of completion of operationson any well on BIA forms; a copy of elec-trical, mechanical or radioactive log, or othertypes of survey of well bore, and core anal-ysis of well.

226.56 ........................... Upon request, Lessee must furnish plat of wells 700 700 2 1,400in manner, form, and method prescribed bySuperintendent.

226.65 ........................... Lessee must maintain site security plan, includ- 700 700 4 2,800ing facility diagram.

226.66 ........................... Lessee must report accidents, fires, vandalism 22 44 1 44including an estimate of the volume of oil in-volved and notify surface owner.

T o ta l ............................................................. ........................ 1 4 ,4 3 6 .......................... 2 1 ,9 5 4

J. National Environmental Policy Act

This rule does not constitute a majorFederal action significantly affecting thequality of the human environment. It iscategorically excluded from furtherreview under 43 CFR 46.210(i) becausethese are regulations "whoseenvironmental effects are too broad,speculative, or conjectural to lendthemselves to meaningful analysis andwill later be subject to the NEPA processeither collectively or case by case." Noextraordinary circumstances exist thatwould require greater NEPA review.

K. Effects on the Energy Supply (E.O.13211)

This rule is not a significant energyaction under the definition in ExecutiveOrder 13211. A Statement of EnergyEffects is not required.

List of Subjects in 25 CFR Part 226

Indians-lands.

For the reasons stated in thepreamble, the Department of theInterior, Bureau of Indian Affairs,revises part 226 in Title 25 of the Codeof Federal Regulations to read asfollows:

PART 226-LEASING OF OSAGERESERVATION LANDS FOR OIL ANDGAS MINING

Sec.226.1 Definitions.226.2 What requirements govern?

Subpart A-Leasing Procedure226.3 What orders and notices can BIA

issue?226.4 What responsibilities does the

Superintendent have?226.5 What are the requirements for lease

sales and approvals?226.6 How does a lessee surrender a lease?226.7 What forms of payment are

acceptable?226.8 How do changes in the current

regulations impact leases?226.9 What are the bonding requirements

for leases?226.10 Can the Superintendent increase the

amount of the bond required?226.11 When can the Superintendent

release a bond?226.12 What forms are made a part of the

regulations?226.13 What information must a

corporation submit?

Subpart B-Rental, Production and Royalty

Rental, Drilling and Production Obligations

226.14 What are the requirements for rental,drilling, and production?

226.15 What are the lessee's obligationsregarding drainage?

226.16 What can the Superintendent dowhen drainage occurs?

Lease Term

226.17 What is the term of a lease?

Royalty Payments

226.18 What is the royalty rate for oil?226.19 How is the gravity adjustment

calculated?226.20 How is the royalty on gas

calculated?

226.21 Who determines royalty on lost orwasted minerals?

226.22 What is the minimum royaltypayment for all leases?

226.23 What royalty is due on othermarketable products?

226.24 What purchase options does theFederal Government have?

226.25 How are royalty payments made?226.26 What reports are required to be

provided?226.27 Can a lessee enter into royalty

payment contracts and division orders?

Unit Leases, Assignments and RelatedInstruments

226.28 When is unitization allowed?226.29 How are leases assigned?226.30 Are overriding royalty agreements

allowed?226.31 When are drilling contracts allowed?226.32 When can an oil lease and a gas

lease be combined?

Subpart C-Operations

226.33 What are the general requirementsgoverning operations?

226.34 What requirements apply tocommencement of operations on a lease?

226.35 How does a lessee acquirepermission to begin operations on arestricted homestead allotment?

226.36 What kind of notice and informationis required to be given surface ownersprior to commencement of drillingoperations?

226.37 How much of the surface may alessee use?

226.38 What commencement money mustthe lessee pay to the surface owner?

226.39 What fees must lessee pay to asurface owner for tank siting?


226.40 What is a settlement of damagesclaimed?

226.41 What is the procedure for settlementof damages claimed?

226.42 What are a lessee's obligations forproduction?

226.43 What documentation is required fortransportation of oil or gas or othermarketable product?

226.44 What are a lessee's obligations forpreventing pollution?

226.45 What are a lessee's otherenvironmental responsibilities?

226.46 What safety precautions must alessee take?

226.47 When can the Superintendent granteasements for wells off leased premises?

226.48 A lessee's use of water.226.49 What are the responsibilities of an

oil lessee when a gas well is drilled andvice versa?

226.50 How is the cost of drilling a welldetermined?

226.51 What are the requirements for usinggas for operating purposes and tribaluses?

Subpart D-Cessation of Operations226.52 When can a lessee shutdown,

abandon, and plug a well?226.53 When must a lessee dispose of

casings and other improvements?

Subpart E-Requirements of Lessees226.54 What general requirements apply to

lessees?226.55 When must a lessee designate

process agents?226.56 What are the lessee's record and

reporting requirements for wells?226.57 What line drilling limitations must a

lessee comply with?226.58 What are the requirements for

marking wells and tank batteries?226.59 What precautions must a lessee take

to ensure natural formations areprotected?

226.60 What are a lessee's obligations tomaintain control of wells?

226.61 How does a lessee prevent waste ofoil and gas and other marketableproducts?

226.62 How does a lessee measure and storeoil?

226.63 How is gas measured?226.64 When can a lessee use gas for lifting

oil?226.65 What site security standards apply

to oil and gas and other marketableproduct leases?

226.66 What are a lessee's reportingrequirements for accidents, fires, theft,and vandalism?

Subpart F-Penalties226.67 What are the penalties for violations

of lease terms?226.68 What are the penalties for violation

of certain operating regulations?

Subpart G-Appeals and Notices226.69 Who can file an appeal?226.70 Are the notices by the

Superintendent binding?226.71 Information collection.

Authority: Sec. 3, 34 Stat. 543; secs. 1, 2,45 Stat. 1478; sec. 3, 52 Stat. 1034, 1035; sec.2(a), 92 Stat. 1660.

§ 226.1 Definitions.As used in this part, terms have the

meanings set forth in this section.Authorized representative of an oil

lessee, gas lessee, or oil and gas lesseemeans any person, group, or groups ofpersons, partnership, association,company, corporation, organization, oragent employed by or contracted with alessee or any subcontractor to conductoil and gas operations or providefacilities to market oil and gas.

Avoidably lost means the venting orflaring of produced gas or othermarketable product without the priorauthorization, approval, ratification, oracceptance of the Superintendent andthe loss of produced oil or gas or othermarketable product when theSuperintendent determines that suchloss occurred as a result of:

(1) Negligence on the part of thelessee; or

(2) The failure of the lessee to take allreasonable measures to prevent and/orcontrol the loss; or

(3) The failure of the lessee to complyfully with the applicable lease termsand regulations, applicable orders andnotices, or the written orders of theSuperintendent; or

(4) Any combination of the foregoing.Condensate means liquid hydro-

carbons (normally exceeding 40 degreesof API gravity) recovered at the surfacewithout resorting to processing.Condensate is the mixture of liquidhydrocarbons that results fromcondensation of petroleumhydrocarbons existing initially in agaseous phase in an undergroundreservoir.

Drainage means the migration ofhydrocarbons, inert gases, or associatedresources caused by production fromother wells.

Gas lessee means any person, firm, orcorporation to whom a gas mining leaseis made under the regulations in thispart, or an authorized representative.

Gas well means any well that:(1) Produces raw natural gas not

associated with crude petroleum oil atthe time of production; or

(2) Produces more than 15,000standard cubic feet of raw natural gas toeach barrel of crude petroleum oil fromthe same producing formation.

Lease means any contract approvedby the United States under the Act ofJune 28, 1906 (34 Stat. 539), asamended, that authorizes explorationfor, extraction of, or removal of oil orgas or other marketable product.

Marketable condition means acondition in which lease products are

sufficiently free from impurities andotherwise so conditioned that apurchaser will accept them under asales contract typical for the field orarea.

Maximum ultimate economicrecovery means the recovery of oil andgas and any other marketable productfrom leased lands that a prudent lesseecould be expected to make from thatfield or reservoir given existingknowledge of reservoir and otherpertinent facts and using commonindustry practices for primary,secondary or tertiary recoveryoperations.

Natural gas liquids (NGLs) meansthose gas plant products consisting ofethane, propane, butane, or heavierliquid hydrocarbons.

Notice to lessees (NTLs) means awritten notice issued or adopted by theSuperintendent. NTLs implement theregulations in this part and operatingorders, and serve as instructions onspecific item(s) of importance.

Oil and gas lessee means any person,firm, or corporation to whom an oil andgas mining lease is made under theregulations in this part, or an authorizedrepresentative.

Oil lessee means any person, firm, orcorporation to whom an oil mining leaseis made under the regulations in thispart, or an authorized representative.

Oil well means any well that producesone barrel or more of crude petroleumoil for each 15,000 standard cubic feetof raw natural gas.

Onshore oil and gas order means aformal order issued or adopted by theDirector of the Bureau of Indian Affairs,which implements and supplements theregulations in this part.

Osage Minerals Council means theduly elected governing body of theOsage Nation or Tribe of Indians ofOklahoma vested with authority to enterinto leases or take other actions on oiland gas mining and other marketableproducts pertaining to the Osagemineral estate.

Other marketable product means anon-hydrocarbon product, including butnot limited to helium, nitrogen, andcarbon-dioxide, for which there is amarket.

Primary term means the basic periodof time for which a lease is issuedduring which the lease contract may bekept in force by payment of rentals.

Production in paying quantitiesmeans production from a lease of oiland/or gas of sufficient value to exceeddirect operating costs and the cost oflease rentals or minimum royalties.

Raw natural gas or gas means gasproduced from oil and gas wells,

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including all natural gas liquids beforeany treating or processing.

Secretary means the Secretary of theInterior or the Secretary's authorizedrepresentative acting under delegatedauthority.

Superintendent means theSuperintendent of the Osage Agency,Pawhuska, Oklahoma, or theSuperintendent's authorizedrepresentative acting under delegatedauthority, or such other person as theSecretary or Superintendent maydelegate to fulfill the responsibilitiesand exercise the authorities under thispart.

Surface owner means any person orentity that owns a surface estate withinOsage County, irrespective of whetherthe surface estate is held in fee,restricted fee or trust status.

Waste of oil or gas or othermarketable product means any act orfailure to act by the lessee that theSuperintendent finds was not necessaryfor proper development and productionand that results in:

(1) A reduction in the quantity orquality of oil and gas or othermarketable product ultimatelyproducible from a reservoir underprudent and proper operations; or

(2) Avoidable surface loss of oil or gasor other marketable product.

§226.2 What requirements govern?All oil and gas activities or activities

related to development of othermarketable products conducted inOsage County are subject to:

(a) The regulations in this part;(b) Lease terms;(c) Orders of the Superintendent; and(d) All other applicable laws,

regulations, and authorities.

Subpart A-Leasing Procedure

§226.3 What orders and notices can BIAissue?

(a) In accordance with applicable lawsand regulations, the Bureau of IndianAffairs (BIA), after consultation with theOsage Minerals Council whereappropriate, is authorized to:

(1) Issue and make effective in OsageCounty oil and gas orders or notices tolessees (NTLs); or

(2) Adopt onshore oil and gas orders,NTLs, or related oil and gas regulationsissued by the Bureau of LandManagement.

(b) Adoptions by the Bureau of IndianAffairs remain in effect according totheir terms and cannot be modified byany action of the Bureau of LandManagement unless the Director issuesfurther orders to that effect inaccordance with the AdministrativeProcedure Act where applicable.

§226.4 What responsibilities does theSuperintendent have?

(a) The Superintendent is authorizedand directed to:

(1) Approve unitization,communitization, gas storage and othercontractual agreements;

(2) Assess compensatory royalty;(3) Approve suspensions of operations

or production, or both;(4) Approve and monitor lessee

proposals for drilling, development orproduction of oil and gas and any othermarketable product;

(5) Perform administrative reviews;(6) Impose monetary assessments or

penalties;(7) Provide technical information and

advice relative to oil and gas and anyother marketable product developmentand operations;

(8) Approve, inspect, and regulate theoperations that are subject to theregulations in this part;

(9) Require compliance with leaseterms, with the regulations in this titleand all other applicable regulations andlaws; and

(10) Require that all operations beconducted in a manner which protectsnatural resources and environmentalquality, protects life and property, andresults in the maximum ultimaterecovery of oil and gas and any othermarketable product with minimumwaste and with minimum adverse effecton the ultimate recovery of othermineral resources unless otherwiseapproved by the Superintendent.

(b) The Superintendent may issuewritten orders to govern specific leaseoperations. Before approving operationson a leasehold, the Superintendent mustdetermine that the lease is in effect, thatacceptable bond coverage has beenprovided, and that the proposed plan ofoperations is sound.

(c) The Superintendent must establishprocedures to ensure that each lease sitewhich has a documented history ofnoncompliance with applicableprovisions of law or regulations, leaseterms, orders or directives be inspectedat least once annually.

§226.5 What are the requirements forlease sales and approvals?

(a) The steps in a lease sale are asfollows:

(1) A written application, togetherwith any nomination fee, for tracts to beoffered for lease shall be filed with theSuperintendent.

(2) The Superintendent, with theconsent of the Osage Minerals Council,shall publish notices for the sale of oilleases, gas leases, and oil and gas leasesto the highest responsible bidder onspecific tracts of the unleased Osage

mineral estate. The Superintendent mayrequire any bidder to submit satisfactoryevidence of his/her good faith andability to comply with all provisions ofthe notice of sale.

(3) A successful bidder must depositwith the Superintendent within 5business days following the sale, acashier's check, money order, orelectronic funds transfer in an amountnot less than 25 percent of the cashbonus offered as a guaranty of goodfaith. Any and all bids are subject toacceptance by the Osage MineralsCouncil and approval by theSuperintendent.

(4) Within 20 days after beingnotified, the successful bidder mustsubmit to the Superintendent thebalance of the bonus, a $75 filing fee,and a completed lease form.

(i) The Superintendent may extendthe deadline for submitting thecompleted lease form, but no extensionwill be granted for remitting the balanceof monies due.

(ii) The deposit will be forfeited forthe use and benefit of the Osage mineralestate if any of the following occur:

(A) The bidder fails to pay the fullconsideration by the required deadline;or

(B) The bidder fails to file thecompleted lease by the requireddeadline or extension thereof; or

(C) The lease is rejected, pursuant tosubsection 5, through no fault of theOsage Minerals Council or theSuperintendent.

(5) The Superintendent may reject alease made on an accepted bid, uponsatisfactory evidence of collusion, fraud,or other irregularity in connection withthe notice of sale.

(b) The Superintendent may approveleases made by the Osage MineralsCouncil in conformity with the notice ofsale, regulations in this part, bonds, andother instruments required.

(c) Within 30 calendar days followingapproval of a lease, the Superintendentshall post at the Agency, a legaldescription of the mineral estate thatwas leased.

(d) Prior to approval by theSuperintendent, each oil and/or gaslease shall be assessed and evaluated fortheir environmental impact inaccordance with Bureau regulationsimplementing the NationalEnvironmental Policy Act and otherapplicable laws.

(e) The lessee accepts a lease with theunderstanding that a mineral notcovered by the lease may be leasedseparately.

(f) No lease, assignment thereof, orinterest therein will be approved to anyemployee or employees of the

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Government and no such employee ispermitted to acquire any interest in acorporation or other business entityholding a lease of the Osage mineralestate.

(g) The Osage Minerals Council mayutilize the following procedures amongothers, in entering into a lease:

(1) A lease may be entered intothrough competitive bidding as outlinedin paragraph (a)(2) of this section,negotiation, or a combination of both;

(2) The Osage Minerals Council mayrequest the Superintendent undertakethe preparation, advertisement andnegotiation of leases; and/or

(3) The Osage Minerals Council mayrequest the Superintendent to provideinformation regarding the currentestimated value of any or all or each ofthe leases to the Osage Minerals Councilbased on comparable sales of Federal,Indian, State, and private leases.

(h) The Superintendent may approveany lease made by the Osage MineralsCouncil.

§ 226.6 How does a lessee surrender alease?

(a) The lessee may, with the approvalof the Superintendent and payment of a$75 filing fee, surrender all or anyportion of any lease, have the leasecancelled as to the portion surrenderedand be relieved from all futureobligations and liabilities.

(b) If the lease, or portion, beingsurrendered is owned in undividedinterests by more than one party, thenthe following requirements apply:

(1) All parties must join in theapplication for cancellation;

(2) If the lease has been recorded, thenthe lessee must execute a release andrecord the same in the proper office;

(3) Surrender does not entitle thelessee to a refund of the unused portionof rental paid in lieu of development,nor does it relieve the lessee and his orher sureties of any obligation andliability incurred prior to the surrender;

(4) When there is a partial surrenderof any lease and the acreage to beretained is less than 160 acres, thesurrender is effective only with consentof the Osage Minerals Council andapproval of the Superintendent.

(c) The Superintendent cannotapprove the surrender or partialsurrender of a lease until adetermination has been made that allwells have either been properly pluggedand abandoned, and/or the future legalliability for plugging and abandoningwells within the lease or partial lease tobe surrendered has been assumed inwriting by another financiallyresponsible party.

§226.7 What forms of payment areacceptable?

Sums due under a lease contract and/or the regulations in this part must bepaid in the manner and methodspecified by the Superintendent, unlessotherwise specified in these regulations.Such sums constitute a prior lien on allequipment and unsold oil on the leasedpremises.

§ 226.8 How do changes in the currentregulations impact leases?

Leases issued pursuant to this part aresubject to the current regulations of theSecretary, all of which are made a partof such leases: Provided, that noamendment or change of suchregulations made after the approval ofany lease operates to affect the term ofthe lease, rate of royalty, rental, oracreage unless agreed to by both partiesand approved by the Superintendent.

§226.9 What are the bondingrequirements for leases?

Lessees shall furnish surety bonds orpersonal bonds acceptable to theSuperintendent as follows:

(a) The per-well "Bonding Amount"shall be $5,000.

(b) A surety bond or personal bondequal to the Bonding Amount must befiled at the time an Application forPermit to Drill is approved and/or thelessee acquires liability for existingwells on a lease.

(c) A lessee must at all times maintainon file with the Superintendent suretybonds and/or personal bonds in anamount equal to the Bonding Amounttimes the number of wells on thelessee's leases, up to a maximum of 25wells.

(d) To meet the requirements of thissection, a surety bond must be issued bya qualified surety company approved bythe Department of the Treasury (seeDepartment of the Treasury Circular No.570).

(e) Personal bonds must beaccompanied by at least one of thefollowing:

(1) A certificate of deposit issued bya financial institution, the deposits ofwhich are federally insured, explicitlygranting the Secretary full authority todemand immediate payment in case ofdefault in the performance of the termsand conditions of the lease. Thecertificate must explicitly indicate on itsface that Secretarial approval is requiredprior to redemption of the certificate ofdeposit by any party.

(2) A cashier's check.(3) A certified check.(4) Negotiable Treasury securities of

the United States of a value equal to theamount specified in the bond.

Negotiable Treasury securities must beaccompanied by a proper conveyance tothe Superintendent of full authority tosell such securities in case of default inthe performance of the terms andconditions of a lease.

(5) An irrevocable letter of creditissued by a financial institution, thedeposits of which are Federally insured,for a specific term, identifying theSuperintendent as sole payee with fullauthority to demand immediatepayment in the case of default in theperformance of the terms and conditionsof a lease. Letters of credit are subjectto the following conditions:

(i) The letter of credit must be issuedonly by a financial institution organizedor authorized to do business in theUnited States;

(ii) The letter of credit must beirrevocable during its term. A letter ofcredit used as security for any leaseupon which drilling has taken place andfinal approval of all abandonment hasnot been given must be collected by theSuperintendent if not replaced by othersuitable bond or letter of credit at least30 calendar days before its expirationdate;

(iii) The letter of credit must bepayable to the Superintendent upondemand, in part or in full, upon receiptfrom the Superintendent of a notice ofattachment stating the basis therefor,e.g., default in compliance with thelease terms and conditions or failure tofile a replacement in accordance withparagraph (c)(5)(ii) of this section;

(iv) The initial expiration date of theletter of credit must be at least 1 yearfollowing the date it is filed; and

(v) The letter of credit must contain aprovision for automatic renewal forperiods of not less than 1 year in theabsence of notice to the Superintendentat least 90 calendar days prior to theoriginally stated or any extendedexpiration date.

(f) In lieu of a surety or personal bondrequired under this section, a bond inthe penal sum of $150,000 may be filedwith the Superintendent for fullnationwide coverage of all leases towhich the Lessee is or may become aparty.

§226.10 Can the Superintendent increasethe amount of the bond required?

(a) The Superintendent may requirean increase in the amount of any bondin appropriate circumstances, including,but not limited to, a history of previousviolations, uncollected royalties due, orwhen the total cost of plugging existingwells and reclaiming lands exceeds thepresent bond amount based on theestimates determined by theSuperintendent.

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(b) The increase in bond amount maybe to any level specified by theSuperintendent, but in nocircumstances shall it exceed the total ofthe estimated costs of plugging andreclamation, the amount of uncollectedroyalties due, plus the amount ofmonies owed to the lessor due toprevious violations remainingoutstanding.

§226.11 When can the Superintendentrelease a bond?

Within 45 calendar days of receivingwritten notice from a lessee that a wellhas been plugged or a lease has expired,the Superintendent must release thebond upon confirming that:

(a) The well has been properlyplugged and the well site has beenreclaimed, or the lease site has beenreclaimed;

(b) All property has been removed(unless otherwise agreed to in writingby the surface owner).

§ 226.12 What forms are made a part of theregulations?

Leases, assignments, and supportinginstruments must be in the formprescribed by the Secretary, and suchforms are hereby made a part of theregulations.

§226.13 What information must acorporation submit?

(a) If the applicant for a lease is acorporation, it must file evidence ofauthority of its officers to executepapers; and with its first application itmust also file a certified copy of itsArticles of Incorporation and, if foreignto the State of Oklahoma, evidenceshowing compliance with thecorporation laws thereof.

(b) Whenever deemed advisable, theSuperintendent may require acorporation to file any additionalinformation necessary to carry out thepurpose and intent of the regulations inthis part, and such information must befurnished within a reasonable time.

Subpart B-Rental, Production andRoyalty

Rental, Drilling and ProductionObligations

§ 226.14 What are the requirements forrental, drilling, and production?

(a) Oil leases, gas leases, andcombination oil and gas leases. Unlessthe lessee completes and places inproduction a well producing and sellingoil and/or gas in paying quantities onthe land embraced within the leasewithin 12 months from the date ofapproval of the lease, or as otherwiseprovided in the lease terms, or 12

months from the date theSuperintendent consents to drilling onany restricted homestead selection, thelease will terminate unless rental at therate of not less than $3 per acre for anoil or gas lease, or not less than $6 peracre for a combination oil and gas lease,is paid at the beginning of the first yearof the lease.

(1) The lease may also be held for theremainder of its primary term withoutdrilling upon payment of the specifiedrental annually in advance,commencing with the second lease year.

(2) The lease will terminate as of thedue date of the rental unless such rentalis received by the Superintendent on orbefore said date.

(3) The completion of a wellproducing in paying quantities will, forso long as such production continues,relieve the lessee from any furtherpayment of rental, except that, shouldsuch production cease during theprimary term the lease may becontinued only during the remainingprimary term of the lease by payment ofadvance rental which will be due on thenext anniversary date of the lease.Rental must be paid on the basis of afull year and no refund will be made ofadvance rental paid in compliance withthe regulations in this part.

(b) The Superintendent may, with theconsent of and under terms approved bythe Osage Minerals Council, grant anextension of the primary term of a leaseon which actual drilling of a well hascommenced within the term thereof, orfor the purpose of enabling the lessee toobtain a market for his/her oil and/orgas production.

(c) Irrespective of whether the lesseehas drilled or paid rental, theSuperintendent in his/her discretionmay order further development of anyleased acreage or a specific horizon inany lease term if, in his/her opinion, aprudent lessee would conduct furtherdevelopment. A prudent lessee willdiligently develop the mineralsunderlying the leasehold. The OsageMinerals Council has the right torequest a determination of whetherthere is diligent development by theSuperintendent as to any lease and maysubmit any materials or analysis tosupport its request. Upon receipt of arequest, the Superintendent willevaluate the request and may requireadditional information be submitted bythe lessee and the Osage MineralsCouncil before making a finaldetermination.

(d) If the lessee refuses to complywith an order by the Superintendent todiligently develop its leasehold as aresult of a determination underparagraph (c) of this section, the refusal

will be considered a violation of thelease terms and said lease will beterminated as to the acreage or horizonthe further development of which wasordered, after any appeal of an order.The Superintendent will promptlynotify the lessee of such termination.

(e) Except for a lease during itsprimary term for which rental paymenthas been paid, a lease that does notproduce in paying quantities for 120consecutive calendar days is therebyterminated by operation of law, effectiveimmediately. The Superintendent willnotify the lessee of such termination.

(1) The Superintendent has theauthority before termination to approvein writing a temporary suspension ofoperations tolling the 120-day period fora specified number of days, due to forcemajeure, other hardship, or otherextenuating circumstance.

(2) Any request for a temporarysuspension of operations must be madein writing to the Superintendent at least20 calendar days prior to the expirationof the 120-day period in which the leasehas not produced in paying quantities.

(3) The Superintendent, for goodcause, may extend in writing the time ofany temporary suspension of operations.

(4) The Superintendent must providea copy of any decision under thisparagraph (e) to the Osage MineralsCouncil at the same time it is deliveredto the lessee.

(f) Whenever the Osage MineralsCouncil identifies any lease that hasterminated or may be subject totermination for any reason, the OsageMinerals Council has the right torequest in writing appropriate action bythe Superintendent, including but notlimited to the issuance of a notice oftermination to the lessee, and maysubmit any materials or analysis insupport of its request. Upon receipt ofsuch a request, within 90 calendar daysthe Superintendent must either take therequested action or issue a writtendecision responsive to the request.

(g) The Superintendent may imposerestrictions as to time of drilling andrate of production from any well orwells when the Superintendent judgesthese restrictions to be necessary orproper for the protection of the naturalresources of the leased land and theinterests of the Osage mineral estate.The Superintendent may consider,among other things, Federal andOklahoma laws regulating either drillingor production.

(h) If a lessee holds both an oil leaseand a gas lease covering the sameacreage, such lessee is subject to theprovisions of this section as to both theoil lease and the gas lease.

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§ 226.15 What are the lessee's obligationsregarding drainage?

(a) Where lands in any leases arebeing drained of their oil or gas contentby wells outside the lease, the lesseemust drill or modify and produce allwells necessary to protect the leasedlands from drainage within a reasonabletime after the earlier of when the lesseeknew or should have known of thedrainage. In lieu of drilling or modifyingnecessary wells, the lessee may, withthe consent of the Superintendent, paycompensatory royalty for drainage thathas occurred or is occurring.

(b) Actions under paragraph (a) of thissection are not required if the lesseeproves to the Superintendent that whenit first knew or had constructive noticeof drainage it could not produce apaying quantity of oil or gas from aprotective well on the lease for areasonable profit above the cost ofdrilling, completing and operating theprotective well.

(c) A lessee has constructive noticethat drainage may be occurring whenwell completion or first productionreports for the draining well arepublicly available, or, if the lesseeoperates or owns any interest in thedraining well or lease, upon completionof drill stem, production, pressureanalysis, or flow tests of the drainingwell.

(d) If a lessee assigns its interest in alease or transfers its operating rights, itis liable for drainage that occurs beforethe date the assignment or transfer isapproved by the Superintendent. Anylessee who acquires an interest in alease on which the Superintendent hasdetermined that the assignor wasrequired to take action under paragraph(a) of this section is liable for payingcompensatory royalties associated withproduction occurring on and after thedate the assignment or transfer isapproved by the Superintendent.

§226.16 What can the Superintendent dowhen drainage occurs?

(a) The Superintendent may send ademand letter by certified mail, returnreceipt requested, or personally servethe lessee with notice, if theSuperintendent believes that drainage isoccurring. However, the lessee'sresponsibility to take protective actionarises when it first knew or hadconstructive notice of the drainage, evenwhen that date precedes the demandletter.

(b) Since the time required to drilland produce a protective well variesaccording to the location and conditionsof the oil and gas reservoir, theSuperintendent will determine this on acase-by-case basis. The Superintendentwill consider several factors, including,but not limited to:

(1) The time required to evaluate thecharacteristics and performance of thedraining well;

(2) Rig availability;(3) Well depth;(4) Required environmental analysis;(5) Special lease stipulations that

provide limited time frames in which todrill; and

(6) Weather conditions.(c) If the Superintendent determines

that a lessee did not take protectiveaction in a timely manner, the lesseewill owe compensatory royalty for theperiod of the delay.

(d) The Superintendent will assesscompensatory royalty beginning on thefirst day of the month following theearliest reasonable time the lesseeshould have taken protective action andcontinuing until:

(1) The lessee drills sufficienteconomic protective wells and the wellsremain in continuous production;

(2) The draining well stops producing;or

(3) The lessee relinquishes its interestin the lease.

Lease Term

§ 226.17 What is the term of a lease?Leases issued under this part are for

a primary term as established by theOsage Minerals Council, approved bythe Superintendent, and so stated in thenotice of sale of such leases and so longthereafter as the minerals specified areproduced in paying quantities.

Royalty Payments

§ 226.18 What is the royalty rate for oil?(a) The lessee must deliver to the

Superintendent a royalty on productionremoved or sold from the lease, thatproportion specified in the notice of sale(but not less than 20 percent) of theamount or value of the oil determinedunder paragraph (b) of this section.

(b) Unless the Osage MineralsCouncil, with approval of theSuperintendent, elects to take theroyalty in kind, the settlement value perbarrel is the greater of:

(1) The average NYMEX daily price ofoil at Cushing, Oklahoma, for the monthin which the produced oil was sold,adjusted for gravity using the scaleapplicable under § 226.19. Theapplicable average NYMEX daily priceof oil at Cushing, Oklahoma and gravityadjustment scale will be available fromthe Superintendent upon request, on orbefore the fifth day of the monthfollowing production; or

(2) The actual selling price for thetransaction as adjusted for gravity.

(c) Should the lessor, with approval ofthe Secretary, elect to take the royalty inkind, the lessee must furnish freestorage for royalty oil for a period notto exceed 60 calendar days from date ofproduction after notice of such election.

§ 226.19 How is the gravity adjustmentcalculated?

(a) The gravity adjustment of AverageDaily NYMEX Price of oil at Cushing,Oklahoma under § 226.18(b)(1) is adeduction from the price per barrel, asfollows:

If the gravity of the oil is . . . the rate is . . . for each . . .

(1) At or between 40.0 and 44.9 degrees ......... zero.(2) At or between 35.0 and 39.9 degrees ......... $0.02 ................................................................ degree or fraction thereof below 40.0.(3) Below 35.0 degrees ..................................... $0.10 plus an additional $0.015 one-tenth of one degree below 35.0.(4) Above 44.9 degrees ..................................... $0.015 .............................................................. for each one-tenth of one degree above 44.9.

(b) The Superintendent may, on orbefore the fifth day of the monthfollowing production, publish a gravityadjustment scale for oil of gravity below40.0 degrees or above 44.9 degrees thatsupersedes this paragraph, but only ifthe Superintendent determines, based

on substantial evidence, that marketconditions so warrant.

§ 226.20 How is the royalty on gascalculated?

(a) All gas removed from the leasefrom which it is produced must bemetered before removal unless

otherwise approved by theSuperintendent and be subject to aroyalty of not less than 20 percent of thegross proceeds of the gas. Unless theOsage Minerals Council, with approvalof the Superintendent, elects to take theroyalty in kind, gross proceeds must be

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calculated under paragraph (b) of thissection; except that the Superintendentmay direct (and the Osage MineralsCouncil may request that theSuperintendent direct) any lessee, uponno less than 30 calendar days notice, tocalculate gross proceeds at the higherroyalty value of paragraph (b) orparagraph (c) of this section.

(b) Under this paragraph, grossproceeds of the gas must be determinedby multiplying the measured volume ofgas at the well (Mcf), times the heatingvolume of the gas (MMBtu/Mcf), timesthe index price of the gas ($/MMBtu) forOklahoma Zone 1 published by theDepartment of the Interior's Office ofNatural Resources Revenue. If thatMonthly Index Price ceases to bepublished and/or is not otherwiseavailable, the price must be calculatedin a comparable manner to bedetermined by the Superintendent. Theheating value of the gas shall becalculated in accordance with AmericanPetroleum Institute MPMS Chapter 14,Section 5, and shall be reported underthe following conditions: Dry (no watervapor), real, gross, and adjustedpressure of 14.73 psi and a temperatureof 60 degrees Fahrenheit. If any lesseesupplies gas produced from one leasefor operation and/or development of anyother lease, including another lease heldby the same lessee, the royaltycalculated under this section must bepaid on all gas so used.

(c) Under this paragraph, grossproceeds of the gas will be 100 percentof the actual proceeds from sales of allresidue gas produced from the lease andone hundred percent of the actualproceeds from sales of all natural gasliquids produced from the lease minusthe actual, reasonable cost of processingnot to exceed 50 percent of the actualsales value of the natural gas liquids(including drip condensate). If theactual reasonable cost of processingcannot be obtained, upon approval bythe Superintendent, the lessee maydetermine such cost in accordance withthe alternative methodology andprocedures in 30 CFR 1206.180(a) or (b).No other deductions of any kind,whether monetary or volumetric orotherwise, for any purpose, includingbut not limited to compression,dehydration, gathering, treating, ortransportation are allowed.

§226.21 Who determines royalty on lost orwasted minerals?

Royalty is due on all oil and gaswasted or avoidably lost, the volumeand quality of which will be determinedby the Superintendent after taking intoconsideration information provided bythe lessee, but resolving all doubts about

volume and quality in favor of thelessor.

§226.22 What is the minimum royaltypayment for all leases?

Minimum royalty will be owed in theevent the royalty paid from producingleases during any year is less than theannual rental specified for the lease.Minimum royalty is due and payable atthe end of the lease year in an amountequal to the annual rental less theamount paid in royalty on production.

(a) After the primary term, the lesseemust submit with his/her paymentevidence that the lease is producing inpaying quantities.

(b) The Superintendent is authorizedto determine whether the lease isactually producing in paying quantitiesor has terminated for lack of suchproduction.

(c) Payment for any underpaymentnot made within the time specified issubject to a late charge at the rate of notless than 11/2 percent per month for eachmonth or fraction thereof until paid, orsuch other rate as may be set by theSuperintendent after consultation withthe Osage Minerals Council.

§ 226.23 What royalty is due on othermarketable products?

A royalty on other marketableproducts must be paid at the rate of notless than 20 percent of the actual salesvalue of the other marketable productssold, in addition to any other royaltydue on oil or gas.

§226.24 What purchase options does theFederal Government have?

Any of the executive departments ofthe United States Government have theoption to purchase all or any part of theoil produced from any lease at not lessthan the price as defined in § 226.18.

§ 226.25 How are royalty payments made?(a) Royalty payments due may be paid

by either the purchaser or the lessee,provided that the lessee must provide awritten agreement to the Superintendentif the purchaser has agreed to be theresponsible party for making royaltypayments.

(b) All payments are due by the endof the month following the monthduring which the oil and gas isproduced and sold, except when the lastday of the month falls on a weekend orholiday. In such cases, payments aredue on the first business day of thesucceeding month. All payments mustcover the sales of the preceding month.

(c) Failure to make such paymentssubjects the responsible party asprovided in paragraph (a) of this sectionto a late charge at the rate of not less

than 11/2 percent for each month orfraction thereof until paid.

§ 226.26 What reports are required to beprovided?

The lessee must furnish certifiedmonthly reports covering all operationsin a form specified by theSuperintendent, whether there has beenproduction or not, indicating therein thetotal amount of oil, raw natural gas, andother products subject to royaltypayment, by the end of the monthfollowing the month during which theoil and gas is produced and sold, exceptwhen the last day of the month falls ona weekend or holiday. In such cases,reports are due on the first business dayof the succeeding month.

(a) Reports covering oil productionmust include the date of each sale of oil,well or lease identity, lessee, purchaser,volume of oil sold, gravity of oil sold,price paid per barrel for the sale, 40-degree price used for the sale, gravityadjustment scale used for the sale, andtotal amount paid for the sale.

(b) Reports covering gas productionmust contain the total volume of rawnatural gas measured at the well, theBTU value of raw natural gas producedat the well, the periodic gas analysisapplicable to the sale, and the totalvalue paid for the raw natural gas,residue gas, natural gas liquids, andcondensate.

(c) Report forms must be submitted in.csv (comma separated value) or ASCIIformat, or such other equivalent formatspecified by the Superintendent. TheSuperintendent must specify themethod of transmittal. TheSuperintendent may specify that lesseesmust submit the reports and informationrequired by this section directly to otheragencies within the Department of theInterior, in lieu of the Superintendent.

(d) The Superintendent must provideto the Osage Minerals Council copies ofall reports under this section on at leasta quarterly basis in the format originallyreceived by the lessee. Upon writtenrequest by the Osage Minerals Council,the Superintendent will require lesseesto provide to the Osage MineralsCouncil copies of run tickets.

(e) Failure to remit reports subjectsthe lessee to further penalties asprovided in § 226.67 and § 226.68 andsubjects any royalty payment contract ordivision order to termination.

§226.27 Can a lessee enter into royaltypayment contracts and division orders?

(a) The lessee may enter into divisionorders or contracts with the purchasersof oil, gas, or derivatives therefrom thatwill provide for the purchaser to makepayment of royalty in accordance with

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§ 226.25. The following requirementsapply in these cases:

(1) The division orders or contracts donot relieve the lessee from responsibilityfor the payment of the royalty shouldthe purchaser fail to pay.

(2) No production may be removedfrom the leased premises until adivision order and/or contract and itsterms are approved by theSuperintendent:

(3) The Superintendent may granttemporary permission to run oil or gasfrom a lease pending the approval of adivision order or contract.

(4) The lessee must file a certifiedmonthly report and pay royalty on thevalue of all oil and gas used off thepremises for development and operatingpurposes.

(5) The lessee is responsible for thecorrect measurement and reporting ofall oil and/or gas taken from the leasedpremises.

(b) The lessee must require thepurchaser of oil and/or gas from its leaseor leases to furnish the Superintendent,a statement reporting the gross barrels ofoil and/or gross Mcf of gas sold andsales price per barrel and/or gross Mcfduring the preceding month, by the endof the month following the monthduring which the oil and gas isproduced and sold, except when the lastday of the month falls on a weekend orholiday. In such cases, statements aredue on the first business day of thesucceeding month.

Unit Leases, Assignments and RelatedInstruments

§226.28 When is unitization allowed?The Osage Minerals Council and the

lessee or lessees, may, with the approvalof the Superintendent, unitize or merge,two or more oil or oil and gas leases intoa unit or cooperative operating plan topromote the greatest ultimate recoveryof oil and gas from a common source ofsupply or portion thereof embracing thelands covered by such lease or leases.

(a) The cooperative or unit agreementis subject to the regulations in this partand applicable laws governing theleasing of the Osage mineral estate.

(b) Any agreement between the partiesin interest to terminate a unit orcooperative agreement as to all or anyportion of the lands included must besubmitted to the Superintendent for his/her approval.

(c) Upon approval of unit terminationunder paragraph (b) of this section, theleases included under the cooperative orunit agreement will be restored to theiroriginal terms.

(d) For the purpose of preventingwaste and to promote the greatest

ultimate recovery of oil and gas from acommon source of supply or portionthereof, all oil leases, oil and gas leases,and gas leases issued under this partmay be required to join a unitdevelopment plan affecting the leasedlands by the Superintendent with theconsent of the Osage Minerals Council.This plan must adequately protect therights of all parties in interest, includingthe Osage mineral estate.

§226.29 How are leases assigned?Leases or any interest therein may be

assigned or transferred only with theapproval of the Superintendent. Theassignee must be qualified to hold suchlease under existing rules andregulations and furnish a satisfactorybond conditioned for the faithfulperformance of the covenants andconditions thereof.

(a) The lessee must assign either his/her entire interest in a lease or legalsubdivision thereof, or an undividedinterest in the whole lease: Provided,however, that the Superintendent mayapprove an assignment that covers onlya portion of a lease with the consent ofthe Osage Minerals Council. Approvalby the Superintendent of a leaseassignment or transfer of an interest ina lease or legal subdivision, is subject tothe following:

(1) After the Superintendent approvesthe assignment or transfer, the lesseewho made the assignment will continueto be responsible, jointly and severallywith the assignee, for lease obligationsthat accrued before the approval date,whether or not they were identified atthe time of the assignment or transfer.This includes paying compensatoryroyalties for drainage. It also includesresponsibility for plugging wells andabandoning facilities that were drilled,installed, or used before the effectivedate of the assignment or transfer.

(2) The assignee agrees to complywith the terms of the original lease as itapplies to the rights that were acquired.Among other obligations, the assigneemust plug and abandon all unpluggedwells, reclaim the lease site, and remedyall environmental problems in existencethat a purchaser exercising reasonablediligence should have known at thetime of the transfer. The assignee mustalso maintain a bond in accordance withthese regulations.

(b) If a lease is divided by theassignment of an entire interest in anypart, each part will become a separatelease and the assignee is bound tocomply with all the terms andconditions of the original lease.

(c) A fully executed copy of theassignment must be filed with theSuperintendent within 30 calendar days

after the date of execution by all parties.If requested within the 30-day period,the Superintendent may grant anextension of 15 calendar days.

(d) A filing fee of $75 mustaccompany each assignment.

§226.30 Are overriding royaltyagreements allowed?

Agreements creating overridingroyalties or payments out of productionare not considered as an interest in alease as such term is used in § 226.29.Agreements creating overriding royaltiesor payments out of production arehereby authorized and the approval ofthe Department of the Interior or anyagency thereof is not required withrespect thereto, but nothing in any suchagreement modifies any of theobligations of the lessee under its leaseand the regulations in this part. All suchobligations are to remain in full forceand effect, the same as if free of anysuch royalties or payments.

(a) The existence of agreementscreating overriding royalties orpayments out of production, whether ornot actually paid, will not be consideredin justifying the shutdown orabandonment of any well.

(b) Agreements creating overridingroyalties or payments out of productionneed not be filed with theSuperintendent unless incorporated inassignments or instruments required tobe filed pursuant to § 226.29.

§226.31 When are drilling contractsallowed?

The Superintendent is authorized toapprove drilling contracts with astipulation that such approval does notin any way bind or require theDepartment to approve subsequentassignments that may be contemplatedor provided for in the particular drillingcontract approved by the Department.Approval merely authorizes entry on thelease for the purpose of developmentwork.

§ 226.32 When can an oil lease and a gaslease be combined?

A lessee owning both an oil lease andgas lease covering the same acreage isauthorized to convert such leases to acombination oil and gas lease.

Subpart C-Operations

§226.33 What are the generalrequirements governing operations?

(a) The lessee must comply withapplicable laws and regulations; withthe lease terms; and with orders andinstructions of the Superintendent.These include, but are not limited to,conducting all operations in a mannerthat:

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(1) Ensures the proper handling,measurement, disposition, and sitesecurity of leasehold production;

(2) Protects other natural resourcesand environmental quality;

(3) Protects life and property; and(4) Results in maximum ultimate

economic recovery of oil and gas andother marketable products withminimum waste and with minimumadverse effect on ultimate recovery ofother mineral resources.

(b) The lessee must permit properlyidentified authorized representatives ofthe Superintendent to enter upon, travelacross, and inspect lease sites andrecords normally kept on the leasepertinent thereto without advancenotice. Inspections normally will beconducted during those hours whenresponsible persons are expected to bepresent at the operation being inspected.Such permission must include access tosecured facilities on such lease sites forthe purpose of making any inspection orinvestigation for determining whetherthere is compliance with applicable law,the regulations in this part, and anyapplicable orders, notices or directives.

(c) For the purpose of making anyinspection or investigation, theSuperintendent has the same right toenter upon or travel across any lease siteas the lessee.

§226.34 What requirements apply tocommencement of operations on a lease?

(a) No operations are permitted uponany tract of land until a lease coveringsuch tract is approved by theSuperintendent. The Superintendentmay, however, grant authority to anyparty under such lease, consistent withthe regulations in this part that he or shedeems proper, to conduct geophysicaland geological exploration work.

(b) The lessee must submitapplications on forms to be furnished bythe Superintendent and secure approvalbefore:

(1) Well drilling, treating, or workoveroperations are started on the leasedpremises.

(2) Removing casing from any well.(c) The lessee must notify the

Superintendent a reasonable time inadvance of starting work, of intention todrill, redrill, deepen, plug, or abandona well.

(d) Prior to approving any operationsunder this section, the Superintendentwill determine whether anenvironmental assessment or otherinformation is required to comply withapplicable laws such as the NationalEnvironmental Policy Act. If anenvironmental assessment is deemednecessary, the Superintendent willnotify the lessee that it must submit a

draft environmental assessment, whichwill be reviewed and evaluated by theSuperintendent before deciding whetherto prepare an Environmental ImpactStatement or issue a Finding of NoSignificant Impact. The Superintendentwill also notify the lessee of any otherinformation that must be submitted,such as cultural resources surveyreports/archeological surveys whenneeded to comply with the NationalHistoric Preservation Act and theSecretary's Standards and Guidelinesfor Archeology and HistoricPreservation.

§226.35 How does a lessee acquirepermission to begin operations on arestricted homestead allotment?

(a) The lessee may conduct operationswithin or upon a restricted homesteadselection only with the written consentof the Superintendent.

(b) If the allottee is unwilling topermit operations on his/her homestead,the Superintendent will cause anexamination of the premises to be madewith the allottee and lessee or his/herrepresentative. Upon finding that theinterests of the Osage mineral estaterequire that the tract be developed, theSuperintendent will endeavor to havethe parties agree upon the terms underwhich operations on the homestead maybe conducted.

(c) In the event the allottee and lesseecannot reach an agreement, the mattermust be presented by all parties beforethe Osage Minerals Council, and theCouncil will make its recommendations.Such recommendations will beconsidered as final and binding uponthe allottee and lessee. A guardian mayrepresent the allottee. Where no one isauthorized or where no person isdeemed by the Superintendent to be aproper party to speak for a person ofunsound mind or feeble understanding,the Principal Chief of the Osage Nationwill represent him.

(d) If the allottee or his/herrepresentative does not appear beforethe Osage Minerals Council whennotified by the Superintendent, or if theCouncil fails to act within 10 calendardays after the matter is referred to it, theSuperintendent may authorize thelessee to proceed with operations inconformity with the provisions of his/her lease and the regulations in thispart.

§226.36 What kind of notice andinformation is required to be given surfaceowners prior to commencement of drillingoperations?

(a) The lessee must notify or attemptto notify the surface owner in onegeneral written notification sent bycertified mail with a copy to the

Superintendent that it plans to beginconducting the following activities overthe term of its lease: Archeological orbiological surveys, or staking of wells.

(b) No operations of any kind maycommence until the lessee or itsauthorized representative meets withthe surface owner or his/herrepresentative. The lessee must requestthe meeting in writing by certified mailand provide a copy of the letter to theSuperintendent. Unless waived by theSuperintendent or otherwise agreed tobetween the lessee and surface owner,such meeting must be held at least 10calendar days prior to thecommencement or any operations. Atsuch meeting lessee or its authorizedrepresentative must comply with thefollowing requirements:

(1) Indicate the location of the well orwells to be drilled.

(2) Arrange for a route of ingress andegress. Upon failure to agree on a routeof ingress and egress, said route will beset by the Superintendent after theSuperintendent has notified orattempted to notify both the surfaceowner and lessee in writing of theiropportunity to meet and submitinformation for consideration before afinal decision is made.

(3) Furnish to said surface owners thename and address of the party orrepresentative upon whom the surfaceowner must serve any claim for damageswhich he may sustain from mineraldevelopment or operations, and as tothe procedure for settlement thereof asprovided in § 226.41.

(4) Where the drilling is to be onrestricted land, the lessee or itsauthorized representative must meetwith and provide the information inparagraphs (b)(i)-(3) of this section tothe Superintendent.

(5) When the surface owner or itsrepresentative cannot be contacted atthe last known address or has notaccepted a meeting request within 30calendar days of receipt of the request,the Superintendent is required toauthorize lessee, in writing, to proceedwith operations.

§ 226.37 How much of the surface may alessee use?

The lessee or its authorizedrepresentative has the right to use somuch of the surface of the land withinthe Osage mineral estate as may bereasonable for operations andmarketing. This includes, but is notlimited to the right to, lay and maintainpipelines, electric lines, pull rods, otherappliances necessary for operations andmarketing, and the right-of-way foringress and egress to any point ofoperations.

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(a) If the lessee and surface owner areunable to agree as to the routing ofpipelines, electric lines, etc., saidrouting will be set by theSuperintendent after the Superintendenthas notified or attempted to notify boththe surface owner and lessee in writingof their opportunity to meet and submitinformation for consideration before afinal decision is made.

(b) The right to use water for leaseoperations is established by § 226.48.

(c) The lessee must conduct itsoperations in a workmanlike manner,commit no waste and allow none to becommitted upon the land, nor permitany avoidable nuisance to bemaintained on the premises under itscontrol.

§226.38 What commencement moneymust the lessee pay to the surface owner?

(a) Before commencing actualexploration and/or development, thelessee must pay or tender to the surfaceowner commencement money in theamount of $25 per shot hole forexplosive source (for the acquisition ofSingle Fold (100 per cent Seismic)), or$400 per linear mile for surface sourcedata acquisition. For the purpose ofconducting a 3D seismic survey, thelessee must pay commencement moneyin the amount of $10 per acre occupiedduring the time the survey is conducted.The lessee must also paycommencement money in the amount of$2500 for each well.

(1) After payment of commencementmoney the lessee will be entitled toimmediate possession of the drillingsite.

(2) Commencement money will not berequired for the redrilling of a wellwhich was originally drilled under thecurrent lease.

(3) A drilling site must be held to theminimum area essential for operationsand not exceed one and one-half acresin area unless authorized by theSuperintendent.

(4) Commencement money is a credittoward the settlement of the totaldamages.

(5) Acceptance of commencementmoney by the surface owner does notaffect its right to compensation fordamages as described in § 226.40,occasioned by the drilling andcompletion of the well for which it waspaid.

(6) Since actual damage to the surfacefrom operations cannot necessarily beascertained prior to the completion of awell as a serviceable well or dry hole,a damage settlement covering thedrilling operation need not be madeuntil after completion of drillingoperations.

(b) Where the surface is restrictedland, commencement money must bepaid to the Superintendent for thelandowner. All other surface ownersmust be paid or tendered suchcommencement money directly.

(1) Where such surface owners areneither residents of Osage County, norhave a representative located therein,such payment must be made or tenderedto the last known address of the surfaceowner at least 5 calendar days beforecommencing drilling operation on anywell.

(2) If the lessee is unable to reach theowner of the surface of the land for thepurpose of tendering thecommencement money or if the ownerof the surface of the land refuses toaccept the same, the lessee must depositsuch amount with the Superintendentby check payable to the Bureau ofIndian Affairs. The Superintendentmust thereupon advise the owner of thesurface of the land by mail at his/herlast known address that thecommencement money is being held forpayment to him upon his/her writtenrequest.

§ 226.39 What fees must lessee pay to asurface owner for tank siting?

The lessee must pay fees for each tanksited at the rate of $500 per tank, exceptthat:

(a) No payment is due for a tanktemporarily set on a well location sitefor drilling, completing, or testing; and

(b) The sum to be paid for a tankoccupying an area more than 2500square feet will be agreed upon betweenthe surface owner and lessee or, onfailure to agree, the same will bedetermined by arbitration as providedby § 226.41.§ 226.40 What is a settlement of damagesclaimed?

(a) The lessee or its authorizedrepresentative or geophysical permitteemust pay for all damages to growingcrops, any improvements on the lands,and all other surface damages as may beoccasioned by operations.Commencement money will be creditedtoward the settlement of the totaldamages occasioned by the drilling andcompletion of the well for which it waspaid. Such damages must be paid to theowner of the surface and by himapportioned among the partiesinterested in the surface, whether asowner, surface lessee, or otherwise, asthe parties may mutually agree or astheir interests may appear. If the lesseeor its authorized representative andsurface owner are unable to agreeconcerning damages, the same will be

determined by arbitration as providedby § 226.41.

(b) Surface owners must notify theirlessees or tenants of the regulations inthis part and of the necessary procedureto follow in all cases of alleged damages.If so authorized in writing, surfacelessees or tenants may represent thesurface owners.

(c) In settlement of damages onrestricted land, all sums due andpayable must be paid to theSuperintendent for credit to the accountof the Indian entitled thereto. TheSuperintendent will make theapportionment between the Indianlandowner or owners and surface lesseeof record.

(d) Any person claiming damages toan interest in any leased tract, mustfurnish to the Superintendent astatement in writing showing itsclaimed interest. Failure to furnish suchstatement will constitute a waiver ofnotice and estop said person fromclaiming any part of such damages afterthe same has been disbursed.

§226.41 What is the procedure forsettlement of damages claimed?

Where the surface owner or his/herlessee suffers damage due to the oil andgas operations and/or marketing of oil orgas by lessee or its authorizedrepresentative, the procedure forrecovery is as follows:

(a) The party or parties aggrieved will,as soon as possible after the discoveryof any damages, serve written notice tolessee or its authorized representative.The written notice must describe thenature and location of the allegeddamages, the date of occurrence, thenames of the party or parties causingsaid damages, and the amount ofdamages. This requirement does notlimit the time within which action maybe brought in the courts to less than the90-day period allowed by section 2 ofthe Act of March 2, 1929 (45 Stat. 1478,1479).

(b) If the alleged damages are notadjusted at the time of such notice, thelessee or its authorized representativemust try to adjust the claim with theparty or parties aggrieved within 20calendar days from receipt of the notice.If the claimant is the owner of restrictedproperty and a settlement results, a copyof the settlement agreement must besubmitted to the Superintendent forapproval. If the settlement agreementconcerning the restricted property isapproved by the Superintendent,payment must be made to theSuperintendent for the benefit of saidclaimant.

(c) If the parties fail to adjust theclaim within the 20 calendar days

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specified, then within 10 calendar daysthereafter each of the interested partiesmust appoint an arbitrator whoimmediately upon their appointmentmust agree upon a third arbitrator. If thetwo arbitrators fail to agree upon a thirdarbitrator within 10 calendar days, theymust immediately notify the parties ininterest. If said parties cannot agreeupon a third arbitrator within 5 calendardays after receipt of such notice, theSuperintendent will appoint the thirdarbitrator.

(d) As soon as the third arbitrator isappointed, the arbitrators must meet;hear the evidence and arguments of theparties; and examine the lands, crops,improvements, or other property allegedto have been injured. Within 10calendar days they will render theirdecision as to the amount of the damagedue. The arbitrators will bedisinterested persons. The fees andexpenses of the third arbitrator must beborne equally by the claimant and thelessee or its authorized representative.Each lessee or its authorizedrepresentative and claimant must paythe fee and expenses for the arbitratorappointed by him.

(e) When an act of an oil or gas lesseeor its authorized representative resultsin injury to both the surface owner andhis/her lessee, the parties aggrievedmust join in the appointment of anarbitrator. Where the injury complainedof is chargeable to more than one oil orgas lessee, or its authorizedrepresentative, all such chargeablelessees or representatives must join inthe appointment of an arbitrator.

(f) Any two of the arbitrators maymake a decision as to the amount ofdamage due. The decision must be inwriting and served forthwith upon theparties in interest. Each party has 90calendar days from the date the decisionis served in which to file an action ina court of competent jurisdiction. If nosuch action is filed within said time andthe award is against the lessee or itsauthorized representative, he/she mustpay the same, together with interest atan annual rate established for theInternal Revenue Service from date ofaward, within 10 calendar days after theexpiration of said period for filing anaction.

(g) The lessee or its authorizedrepresentative must file with theSuperintendent a report on eachsettlement agreement, setting out thenature and location of the damage, date,and amount of the settlement, and anyother pertinent information.

§226.42 What are a lessee's obligationsfor production?

(a) The lessee must put intomarketable condition at no cost to thelessor, all oil, gas, and other marketableproducts produced from the leased land.

(b) Where oil accumulates in a pit,such oil must either be:

(1) Recirculated through the regulartreating system and returned to thestock tanks for sale; or

(2) Pumped into a stock tank withouttreatment and measured for sale in thesame manner as from any sales tank inaccordance with applicable orders andnotices.

(c) In the absence of prior approvalfrom the Superintendent, no oil may bepumped into a pit except in anemergency. Each such pumpingoccurrence must be reported to theSuperintendent and the oil promptlyrecovered in accordance with applicableorders and notices.

§226.43 What documentation is requiredfor transportation of oil or gas or othermarketable product?

(a) Any person engaged intransporting by motor vehicle any oilfrom any lease site, or allocated to anysuch lease site, must carry on his/herperson, in his/her vehicle, or in his/herimmediate control, documentationshowing at a minimum; the amount,origin, and intended first purchaser ofthe oil.

(b) Any person engaged intransporting any oil or gas or othermarketable product by pipelineproduced from or allocated to any leasesite, must maintain documentationshowing, at a minimum, the amount,origin, and intended first purchaser ofsuch oil or gas or other marketableproduct.

(c) On any lease site, any authorizedrepresentative of the Superintendentwho is properly identified may stop andinspect any motor vehicle that he/shehas probable cause to believe is carryingoil produced from or allocated to anysuch lease site, to determine whetherthe driver possesses properdocumentation for the load of oil.

(d) Any authorized representative ofthe Superintendent who is properlyidentified and who is accompanied byan appropriate law enforcement officer,or an appropriate law enforcementofficer alone, may stop and inspect anymotor vehicle which is not on a leasesite if he/she has probable cause tobelieve the vehicle is carrying oilproduced from or allocated to a leasesite, to determine whether the driverpossesses proper documentation for theload of oil.

§ 226.44 What are a lessee's obligationsfor preventing pollution?

(a) All lessees, contractors, drillers,service companies, pipe pulling andsalvaging contractors, or other persons,must at all times conduct theiroperations and drill, equip, operate,produce, plug, and abandon all wellsdrilled for oil or gas, service wells orexploratory wells (including seismic,core, and stratigraphic holes) in amanner that will prevent pollution andthe migration of oil, gas, salt water, orother substance from one stratum intoanother, including any fresh waterbearing formation.

(b) Pits for drilling mud or deleterioussubstances used in the drilling,completion, recompletion, or workoverof any well must be constructed andmaintained to prevent pollution ofsurface and subsurface fresh water.These pits must be enclosed with afence of at least four strands of barbedwire, or an approved substitute,stretched taut to adequately bracedcorner posts, unless the surface owner,user, or the Superintendent givesconsent to the contrary. Immediatelyafter completion of operations, pits mustbe emptied, reclaimed, and leveledunless otherwise requested by surfaceowner or user.

(c) Drilling pits must be adequate tocontain mud and other materialextracted from wells and must haveadequate storage to maintain a supply ofmud for use in emergencies.

(d) No earthen pit, except those usedin the drilling, completion,recompletion or workover of a well, maybe constructed, enlarged, reconstructedor used without approval of theSuperintendent. Unlined earthen pitsmay not be used for the storage of saltwater or other deleterious substances.

(e) Deleterious fluids other than freshwater drilling fluids used in drilling orworkover operations, which aredisplaced or produced in wellcompletion or stimulation procedures,including, but not limited to, fracturing,acidizing, swabbing, and drill stemtests, must be collected into a pit linedwith plastic of at least 30 mil or a metalor fiberglass tank and maintainedseparately from above-mentioneddrilling fluids to allow for separatedisposal. These pits or tanks must beenclosed with a fence of at least fourstrands of barbed wire, or an approvedsubstitute, stretched taut to adequatelybraced corner posts, unless the surfaceowner or the Superintendent givesconsent to the contrary. Immediatelyafter completion of operations, tanksmust be removed and any pits must beemptied, reclaimed, and leveled unlessotherwise requested by surface owner.

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§226.45 What are a lessee's otherenvironmental responsibilities?

(a) The lessee must conductoperations in a manner which protectsthe mineral resources, other naturalresources, and environmental quality.The lessee must comply with thepertinent orders of the Superintendentand other standards and procedures asset forth in the applicable laws,regulations, lease terms and conditions,and the approved drilling plan orsubsequent operations plan.

(b) The lessee must exercise due careand diligence to assure that leaseholdoperations do not result in unduedamage to surface or subsurfaceresources or surface improvements.

(1) All produced water must bedisposed of by injection into thesubsurface, in approved pits, or by othermethods which have been approved bythe Superintendent.

(2) Upon the conclusion of operations,the lessee must reclaim the disturbedsurface in a manner approved orprescribed by the Superintendent.

(c) All spills or leakages of oil, gas,other marketable products, producedwater, toxic liquids, or waste materials,blowouts, fires, personal injuries, andfatalities must be reported by the lesseeto the Superintendent as soon asdiscovered, but not later than the nextbusiness day.

(1) The lessee must exercise duediligence in taking necessary measures,subject to approval by theSuperintendent, to control and removepollutants and to extinguish fires.

(2) A lessee's compliance with therequirements of the regulations in thispart does not relieve the lessee of theobligation to comply with otherapplicable laws and regulations.

(d) When required by theSuperintendent, a contingency planmust be submitted describingprocedures to be implemented to protectlife, property, and the environment.

(e) The lessee's liability for damagesto third parties is governed byapplicable law.

§226.46 What safety precautions must alessee take?

The lessee must perform operationsand maintain equipment in a safe andworkmanlike manner, includingcompliance with National ElectricalCode for the installation, running,maintenance and use of all electriclines. The lessee must take allprecautions necessary to provideadequate protection for the health andsafety of life and the protection ofproperty. Such precautions do notrelieve the lessee of the responsibilityfor compliance with other pertinent

health and safety requirements underapplicable laws or regulations.

§226.47 When can the Superintendentgrant easements for wells off leasedpremises?

The Superintendent, with the consentof the Osage Minerals Council, maygrant commercial and noncommercialeasements for wells off the leasedpremises to be used for purposesassociated with oil and gas production;provided that the Superintendentnotifies or attempts to notify both thesurface owner and lessee in writing oftheir opportunity to meet with andsubmit information for considerationbefore a final decision is made. Rentspayable to the Osage mineral estate forsuch easements must be in an amountagreed to by Grantee and the OsageMinerals Council, subject to theapproval of the Superintendent. TheGrantee is responsible for all damagesresulting from the use of such wells andsettlement for any damages must bemade as provided in § 226.41.

§226.48 A lessee's use of water.The lessee or his/her contractor may,

with the approval of theSuperintendent, use water from streamsand natural water courses to the extentthat such use does not diminish thesupply below the requirements of thesurface owner from whose land thewater is taken. Similarly, the lessee orhis/her contractor may use water fromreservoirs formed by the impoundmentof water from such streams and naturalwater courses, if such use does notexceed the quantity to which theyoriginally would have been entitled hadthe reservoirs not been constructed. Thelessee or his/her contractor may installnecessary lines and other equipmentwithin the Osage mineral estate toobtain such water. Any damageresulting from such installation must besettled as provided in § 226.41.

§226.49 What are the responsibilities ofan oil lessee when a gas well is drilled andvice versa?

Prior to drilling, an oil or gas lesseemust notify the other lessees of its intentto drill. When an oil lessee in drillinga well encounters a formation or zonehaving indications of possible gasproduction, or the gas lessee in drillinga well encounters a formation or zonehaving indication of possible oilproduction, the lessee mustimmediately notify the other lessee andthe Superintendent. The lessee drillingthe well must obtain all information thata prudent lessee would utilize toevaluate the productive capability ofsuch formation or zone.

(a) Gas well to be turned over to gaslessee. If an oil lessee drills a gas well,it must, without removing from the wellany of the casing or other equipment,immediately shut the well in and notifythe gas lessee and the Superintendent.

(1) If the gas lessee does not, within45 calendar days after receiving noticeand determining the cost of drilling,elect to take over such well andreimburse the oil lessee the cost ofdrilling, including all damages paid andthe cost in-place of casing, tubing, andother equipment, the oil lessee mustimmediately confine the gas to theoriginal stratum. The disposition ofsuch well and the production therefromwill then be subject to the approval ofthe Superintendent.

(2) If the oil lessee and gas lesseecannot agree on the cost of the well, theSuperintendent will apportion the costbetween the oil and gas lessees.

(b) Oil well to be turned over to oillessee. If a gas lessee drills an oil well,then it must immediately, withoutremoving from the well any of thecasing or other equipment, notify the oillessee and the Superintendent.

(1) If the oil lessee does not, within 45calendar days after receipt of notice andcost of drilling, elect to take over thewell, it must immediately notify the gaslessee. From that point, theSuperintendent must approve thedisposition of the well, and any gasproduced from it.

(2) If the oil lessee chooses to takeover the well, it must pay to the gaslessee:

(i) The cost of drilling the well,including all damages paid; and

(ii) The cost in place of casing andother equipment.

(3) If the oil lessee and the gas lesseecannot agree on the cost of the well, theSuperintendent will apportion the costbetween the oil and gas lessees.

(c) Lands not leased. If a gas lesseedrills an oil well upon lands not leasedfor oil purposes or vice versa, theSuperintendent may, until such time assaid lands are leased, permit the lesseewho drilled the well to operate andmarket the production therefrom. Whensaid lands are leased, the lessee whodrilled and completed the well must bereimbursed by the oil or gas lessee forthe cost of drilling said well, includingall damages paid and the cost of in-place casing, tubing, and otherequipment. If the lessee does not electto take over said well as provided above,the disposition of such well and theproduction therefrom will bedetermined by the Superintendent. Inthe event the oil lessee and gas lesseecannot agree on the cost of the well,such cost will be apportioned between

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the oil and gas lessee by theSuperintendent.

§ 226.50 How is the cost of drilling a welldetermined?

The term "cost of drilling" as appliedwhere one lessee takes over a welldrilled by another, includes allreasonable, usual, necessary, and properexpenditures. A list of expensesmentioned in this section must bepresented to proposed purchasing lesseewithin 10 calendar days after thecompletion of the well. In the event ofa disagreement between the parties as tothe charges assessed against the wellthat is to be taken over, such chargeswill be determined by theSuperintendent.

§226.51 What are the requirements forusing gas for operating purposes and tribaluses?

All gas used in accordance with thissection must first be odorized andtreated in accordance with industrystandards for safe use.

(a) Gas to be furnished to oil lessee.The lessee of a producing gas lease mustfurnish the oil lessee sufficient gas foroperating purposes at a rate to be agreedupon, or on failure to agree, the rate willbe determined by the Superintendent:Provided, that the oil lessee must at his/her own expense and risk, furnish andinstall the necessary connections to thegas lessee's well or pipeline. All suchconnections must be reported in writingto the Superintendent.

(b) Use of gas by Osage Tribe. (1) Gasfrom any well or wells must befurnished to any Tribal-owned buildingor enterprise at a rate not to exceed theprice being received or offered by a gaspurchaser, less royalty. Thisrequirement is subject to thedetermination by the Superintendentthat gas in sufficient quantities isavailable above that needed for leaseoperation and that no waste wouldresult. In the absence of a gas purchaser,the rate to be paid by the Osage Nationwill be determined by theSuperintendent based on prices beingpaid by purchasers in the Osage mineralestate. The Osage Nation is to furnish allnecessary materials and labor for suchconnection with the lessee's gas system.The use of such gas is at the risk of theOsage Nation at all times.

(2) Any member of the Osage Nationresiding in Osage County and outside acorporate city is entitled to the use athis/her own expense of not to exceed400,000 cubic feet of gas per calendaryear for his/her principal residence at arate not to exceed the amount paid bya gas purchaser plus 10 percent. Thisrequirement is subject to the

determination by the Superintendentthat gas in sufficient quantities isavailable above that needed for leaseoperation and that no waste wouldresult. In the absence of a gas purchaser,the amount to be paid by the Tribalmember will be determined by theSuperintendent. Gas delivered to Tribalmembers is not royalty free. The Tribalmember is to furnish all necessarymaterial and labor for such connectionto the lessee's gas system, and mustmaintain his/her own lines. The use ofsuch gas is at the risk of the Tribalmember at all times.

(3) Gas furnished by the lessee underparagraphs (b)(1) and (2) of this sectionmay be terminated only with theapproval of the Superintendent. Awritten application for termination mustbe made to the Superintendent showingjustification.

Subpart D-Cessation of Operations

§226.52 When can a lessee shutdown,abandon, and plug a well?

No well may be permanentlyabandoned until it is no longerproducing oil and/or gas in payingquantities and such a showing has beendemonstrated to the satisfaction of theSuperintendent. The lessee may notshut down, abandon, or otherwisediscontinue the operation or use of anywell for any purpose without thewritten approval of the Superintendent.All applications for such approval mustbe submitted to the Superintendent onforms furnished by the Superintendent.

(a) An application for authority topermanently shut down or discontinuethe use or operation of a well must setforth the justification, the means bywhich the well bore is to be protected,and the contemplated eventualdisposition of the well. The method ofconditioning such well is subject to theapproval of the Superintendent.

(b) Prior to permanent abandonmentof any well, the oil lessee or the gaslessee, as the case may be, must offer thewell to the other for his/herrecompletion or use under such terms asmay be mutually agreed upon but not inconflict with the regulations. Failure ofthe lessee receiving the offer to replywithin 10 calendar days after receiptthereof will be deemed a rejection of theoffer. If, after indicating acceptance, thetwo parties cannot agree on the terms ofthe offer within 30 calendar days, thedisposition of such well will bedetermined by the Superintendent.

(c) The Superintendent is authorizedto shut in a lease when the lessee failsto comply with the terms of the lease,the regulations, and/or orders of theSuperintendent.

§ 226.53 When must a lessee dispose ofcasings and other improvements?

(a) Upon termination of a lease,permanent improvements, unlessotherwise provided by writtenagreement with the surface owner andfiled with the Superintendent, remain apart of said land and become theproperty of the surface owner upontermination of the lease. This rule doesnot apply to personal property,including but not limited to, tools,tanks, pipelines, pumping and drillingequipment, derricks, engines,machinery, tubing, and the casings of allwells. When any lease terminates, allsuch personal property must beremoved within 90 calendar days orsuch reasonable extension of time asmay be granted by the Superintendent.Otherwise, the ownership of all casingsreverts to the lessor and all otherpersonal property and permanentimprovements to the surface owner.This should not be construed to relievethe lessee of responsibility for removingany such personal property orpermanent improvements from thepremises if required by theSuperintendent and restoring thepremises as nearly as practicable to theoriginal state.

(b) Upon termination of lease forcause. When there has been atermination for cause, the lessor isentitled and authorized to takeimmediate possession of the leasepremises and all permanentimprovements and all other equipmentnecessary for the operation of the lease.

(c) Wells to be abandoned must bepromptly plugged as prescribed inwriting by the Superintendent.Applications to plug must include astatement affirming compliance with§ 226.52 and must set forth reasons forplugging, a detailed statement of theproposed work, including the kind,location, and length of plugs (by depth),plans for mudding and cementing,testing, parting and removing casing,and any other pertinent information.The lessee must submit a writtenapplication for authority to plug a well.

(d) The lessee must plug and fill alldry or abandoned wells in a manner toconfine the fluid in each formationbearing fresh water, oil, gas, salt water,and other minerals, and to protect itagainst invasion of fluids from othersources. Mud-laden fluid, cement, andother plugs must be used to fill the holefrom bottom to top.

(1) If a satisfactory agreement isreached between the lessee and thesurface owner, subject to the approval ofthe Superintendent, the lessee maycondition the well for use as a fresh

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water well and must so indicate on theplugging record.

(2) The manner in which pluggingmaterial will be introduced and the typeof material used is subject to theapproval of the Superintendent.

(3) Within 10 calendar days afterplugging, the lessee must file with theSuperintendent a complete report of theplugging of each well.

(4) When any well is plugged andabandoned, the lessee must, within 90calendar days, clean up the premisesaround such well to the satisfaction ofthe Superintendent.

Subpart E-Requirements of Lessees

§226.54 What general requirements applyto lessees?

(a) The lessee must comply with allorders or instructions issued by theSuperintendent. The Superintendent orhis/her representative may enter uponthe leased premises for the purpose ofinspection.

(b) The lessee must keep a full andcorrect account of all operations,receipts, and disbursements and makereports thereof, as required.

(c) The lessee's books and recordsmust be available to the Superintendentfor inspection.

(d) The lessee must maintain andpreserve records for 6 years from theday on which the transaction recordedoccurred unless the Superintendentnotifies the lessee of an audit orinvestigation involving the records andthat they must be maintained for alonger period. When an audit orinvestigation is underway, records mustbe maintained until the lessee isreleased in writing from the obligationto maintain the records.

§226.55 When must a lessee designateprocess agents?

(a) Before actual drilling ordevelopment operations are commencedon leased lands, the lessee or assignee,if not a resident of the State ofOklahoma, must appoint a local orresident representative within the Stateof Oklahoma on whom theSuperintendent may serve notice orotherwise communicate in securingcompliance with the regulations in thispart, and notify the Superintendent ofthe name and post office address of therepresentative appointed.

(b) Where several parties own a leasejointly, the parties must designate onerepresentative or agent whose duties areto act for all parties concerned.

(c) The lessee must appoint asubstitute to serve in his/her stead inthe event of the incapacity or absencefrom the State of Oklahoma of such

designated local or residentrepresentative. In the absence of suchrepresentative or appointed substitute,any employee of the lessee upon theleased premises or person in charge ofdrilling or related operations thereonwill be considered the representative ofthe lessee for the purpose of service oforders or notices as herein provided.

§ 226.56 What are the lessee's record andreporting requirements for wells?

(a) The lessee must keep accurate andcomplete records of the drilling,redrilling, deepening, repairing,treating, plugging, or abandonment ofall wells. These records must show:

(1) All the formations penetrated, thecontent and character of the oil, gas,other marketable product, or water ineach formation, and the kind, weight,size, landed depth, and cement recordof casing used in drilling each well;

(2) The record of drill-stem and otherbottom hole pressure or fluid samplesurveys, temperature surveys,directional surveys, and the like;

(3) The materials and procedure usedin the treating or plugging of wells or inpreparing them for temporaryabandonment; and

(4) Any other information obtained inthe course of well operation.

(b) The lessee must take such samplesand make such tests and surveys as maybe required by the Superintendent todetermine conditions in the well orproducing reservoir and to obtaininformation concerning formationsdrilled, and furnish such reports asrequired in the manner and methodspecified by the Superintendent.

(c) Within 10 calendar days aftercompletion of operations on any well,the lessee must transmit to theSuperintendent:

(1) All applicable information onforms furnished by the Superintendent;

(2) A copy of the electrical,mechanical or radioactive log, or othertypes of surveys of the well bore; and

(3) The core analysis obtained fromthe well.

(d) The lessee must also submit otherreports and records of operations as maybe required and in the manner, form,and method prescribed by theSuperintendent.

(e) The lessee must measureproduction of oil, gas, other marketableproduct, and water from individualwells at reasonably frequent intervals tothe satisfaction of the Superintendent.

(f) Upon request and in the manner,form and method prescribed by theSuperintendent, the lessee must furnisha plat showing the location, designation,and status of all wells on the leasedlands, together with such other

pertinent information as theSuperintendent may require.

§226.57 What line drilling limitations musta lessee comply with?

The lessee may not drill within 300feet of the boundary line of leased lands,or locate any well or tank within 200feet of any public highway, anyestablished watering place, or anybuilding used as a dwelling, granary, orbarn, except with the writtenpermission of the Superintendent.Failure to obtain advance writtenpermission from the Superintendentwill subject the lessee to termination ofthe lease and/or plugging of the well.

§226.58 What are the requirements formarking wells and tank batteries?

The lessee must clearly andpermanently mark all wells and tankbatteries in a conspicuous place withthe number, legal description, operator'sname, lessee's name and telephonenumber, and must take all necessaryprecautions to preserve these markings.

§226.59 What precautions must a lesseetake to ensure natural formations areprotected?

The lessee must, to the satisfaction ofthe Superintendent, take all properprecautions and measures to preventdamage or pollution of oil, gas, freshwater, or other mineral bearingformations.

§ 226.60 What are a lessee's obligations tomaintain control of wells?

(a) In drilling operations in fieldswhere high pressures, lost circulation,or other conditions exist which couldresult in blowouts, the lessee mustinstall an approved gate valve or othercontrolling device in proper workingcondition for use until the well iscompleted. At all times, preventativemeasures must be taken in all welloperations to maintain proper control ofsubsurface strata.

(b) Drilling wells. The lessee must takeall necessary precautions to keep eachwell under control at all times, andmust utilize and maintain materials andequipment necessary to insure the safetyof operating conditions and procedures.

(c) Vertical drilling. The lessee mustconduct drilling operations in a mannerso that the completed well does notdeviate significantly from the verticalwithout the prior written approval ofthe Superintendent. Significantdeviation means a projected deviation ofthe well bore from the vertical of 100 ormore, or a projected bottom holelocation which could be less than 200feet from the spacing unit or leaseboundary. Any well which deviatesmore than 100 from the vertical or could

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result in a bottom hole location lessthan 200 feet from the spacing unit orlease boundary without prior writtenapproval must be reported promptly tothe Superintendent. In these cases, adirectional survey is required.

(d) High pressure or loss ofcirculation. The lessee must takeimmediate steps and utilize necessaryresources to maintain or restore controlof any well in which the pressureequilibrium has become unbalanced.

(e) Protection of fresh water and otherminerals. The lessee must isolatefreshwater-bearing and other usablewater containing 5,000 ppm or less ofdissolved solids and other mineral-bearing formations and protect themfrom contamination. Tests and surveysof the effectiveness of such measuresmust be conducted by the lessee usingprocedures and practices approved orprescribed by the Superintendent.

(f) The lessee must conduct activitiesin accordance with the standards andprocedures set forth in Bureau of LandManagement Onshore Oil and Gas OrderNo. 6, Hydrogen Sulfide Operations.

§ 226.61 How does a lessee prevent wasteof oil and gas and other marketableproducts?

(a) The lessee must conduct alloperations in a manner that will preventwaste of oil and gas and othermarketable products and must notwastefully utilize oil or gas or othermarketable products.

(b) The Superintendent has theauthority to impose such requirementsas he deems necessary to prevent wasteof oil and gas and other marketableproducts and to promote the greatestultimate recovery of oil and gas andother marketable products.

(c) For purposes of this section, wasteincludes, but is not limited to, theinefficient, excessive or improper use ordissipation of reservoir energy whichwould reasonably reduce or diminishthe quantity of oil or gas or othermarketable product that mightultimately be produced, or theunnecessary or excessive surface loss ordestruction, without beneficial use, ofoil, gas or other marketable product.

§ 226.62 How does a lessee measure andstore oil?

(a) All production run from the leasemust be measured according to methodsand devices approved by theSuperintendent. Facilities suitable forcontaining and measuring accurately allcrude oil produced from the wells mustbe provided by the lessee and must belocated on the leasehold unlessotherwise approved by theSuperintendent. The lessee must furnish

to the Superintendent a copy of 100-percent capacity tank table for eachtank. Meters and installations formeasuring oil must be approved.

(b) The lessee must ensure that eachLease Automatic Custody Transfer(LACT) meter is inspected, calibrated,and adjusted at least twice in eachcalendar year. Each inspection,calibration, and adjustment must beseparated by a period of not less thanfive months. The lessee must give theSuperintendent at least 48 hours priornotice of all LACT meter inspections,calibrations, and adjustments. TheSuperintendent has the right to witness,unannounced, all LACT meterinspections, calibrations, andadjustments. The lessee must fullycooperate with such witnessing. If theSuperintendent is not present, then hemay request records relating to all LACTmeter inspections, calibrations, andadjustments. Repeated failures tocomply with this subparagraph willrender the lease subject to terminationafter consultation with the OsageMinerals Council.

(c) When a tank of oil is ready forremoval by the purchaser, the lesseemust ensure that the Superintendent isinformed of that fact before thepurchaser is so informed via anelectronic or telephonic methodestablished by the Superintendent forreporting pursuant to this subparagraph.Repeated failures to inform theSuperintendent will render the leasesubject to termination after consultationwith the Osage Minerals Council.

(d) The Superintendent has the rightto witness all gaugings, unannounced,on each lease. The lessee must fullycooperate with such gaugings andrepeated failures to comply will renderthe lease subject to termination afterconsultation with the Osage MineralsCouncil.

§226.63 How is gas measured?(a) All gas required to be measured

must be measured in accordance withthe standards, procedures, and practicesset forth in Bureau of Land ManagementOnshore Oil and Gas Order No. 5,Measurement of Gas. To the extent thatOnshore Oil and Gas Order 5 conflictswith any provision of these regulations,these regulations control.

(b) All gas, required to be measured,must be measured by orifice meterunless otherwise agreed to in writing bythe Superintendent. All gas meters mustbe approved by the Superintendent andinstalled at the expense of the lessee orpurchaser at such places as may beagreed to in writing by theSuperintendent. For computing thevolume of all gas produced, sold or

subject to royalty, the standard ofpressure is 14.65 pounds to the squareinch, and the standard of temperature is60 degrees F. All measurements of gasmust be adjusted by computation tothese standards, regardless of thepressure and temperature at which thegas was actually measured, unlessotherwise authorized in writing by theSuperintendent.

(c) The lessee must ensure that eachmeter is inspected, calibrated, andadjusted at least twice in each calendaryear. Each inspection, calibration andadjustment must be separated by aperiod of not less than five monthsapart. The lessee must give theSuperintendent at least 48 hours priornotice of all meter inspections,calibrations, and adjustments. TheSuperintendent has the right to witness,unannounced, all meter inspections,calibrations, and adjustments. Thelessee must fully cooperate with suchwitnessing. If the Superintendent is notpresent, he may request records relatingto all meter inspections, calibrations,and adjustments. Repeated failures tocomply with this subparagraph willrender the lease subject to terminationafter consultation with the OsageMinerals Council.

§ 226.64 When can a lessee use gas forlifting oil?

The lessee must not use raw naturalgas from a distinct or separate stratumfor the purpose of flowing or lifting oil,except where the lessee has an approvedright to both the oil and the gas, andthen only with the approval of theSuperintendent of such use and of themanner of its use.

§226.65 What site security standardsapply to oil and gas and other marketableproduct leases?

(a) Definitions. The followingdefinitions apply to terms used in thissection.

Appropriate valves. Those valves in aparticular piping system, i.e., fill lines,equalizer or overflow lines, sales lines,circulating lines, and drain lines thatmust be sealed during a given operation.

Effectively sealed. The placement of aseal in such a manner that the positionof the sealed valve may not be alteredwithout the seal being destroyed.

Production phase. That period of timeor mode of operation during whichcrude oil is delivered directly to orthrough production vessels to thestorage facilities and includes alloperations at the facility other thanthose defined as being in the salesphase.

Sales phase. That period of time ormode of operation during which crude

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oil is removed from the storage facilitiesfor sales, transportation or otherpurposes.

Seal. A device, uniquely numbered,which completely secures a valve.

(b) Minimum standards. Each lesseemust comply with the followingminimum standards to assist inproviding accountability for oil or gasproduction:

(1) All lines entering or leaving oilstorage tanks must have valves capableof being effectively sealed during theproduction and sales operations unlessotherwise modified by othersubparagraphs of this paragraph. Anyequipment needed for effective sealing,excluding the seals, must be located atthe site. For a minimum of 6 years thelessee must maintain a record of sealnumbers used and must document onwhich valves or connections they wereused as well as when they wereinstalled and removed. The site facilitydiagram(s) must show which valves willbe sealed in which position during boththe production and sales phases ofoperation.

(2) Each LACT system must employmeters that have non-resettabletotalizers. There may not be any by-passpiping around the LACT. Allcomponents of the LACT that are usedfor volume or quality determinations ofthe oil must be effectively sealed. Forsystems where production may only beremoved through the LACT, no sales orequalizer valves need be sealed.However, any valves which may allowaccess for removal of oil beforemeasurement through the LACT must beeffectively sealed.

(3) There must not be any by-passpiping around gas meters. Equipmentwhich permits changing the orifice platewithout bleeding the pressure off the gasmeter run is not considered a by-pass.

(4) For oil measured and sold by handgauging, all appropriate valves must besealed during the production or salesphase, as applicable.

(5) Circulating lines having valveswhich may allow access to remove oilfrom storage and sales facilities to anyother source except through the treatingequipment back to storage must beeffectively sealed as near the storagetank as possible.

(6) The lessee, with reasonablefrequency, must inspect all leases todetermine production volumes and thatthe minimum site security standards arebeing met. The lessee must retainrecords of such inspections andmeasurements for 6 years fromgeneration. Such records andmeasurements must be available to theSuperintendent upon request.

(7) Any lessee may request theSuperintendent to approve a variancefrom any of the minimum standardsprescribed by this section. The variancerequest must be submitted in writing tothe Superintendent who may considersuch factors as regional oil field facilitycharacteristics and fenced, guardedsites. The Superintendent may approvea variance if the proposed alternativewill ensure measures equal to or inexcess of the minimum standardsprovided in paragraph (b) of this sectionwill be put in place to detect or preventinternal and external theft, and willresult in proper productionaccountability.

(c) Site security plans. (1) Site securityplans, which include the lessee's planfor complying with the minimumstandards enumerated in paragraph (b)of this section for ensuringaccountability of oil/condensateproduction are required for all facilitiesand the lessee must maintain suchfacilities in compliance with the plan.For new facilities, notice must be giventhat it is subject to a specific existingplan, or a notice of a new plan must besubmitted, no later than 60 days aftercompletion of construction or firstproduction, whichever is earlier, and onthat date the facilities must be incompliance with the plan. At thelessee's option, a single plan mayinclude all of the lessee's leases, units,and communitized areas, provided theplan clearly identifies each lease, unit,or communitized area included withinthe scope of the plan and the extent towhich the plan is applicable to eachlease, unit, or communitized area soidentified.

(2) The lessee must retain the planand notify the Superintendent of itscompletion and which leases, units, andcommunitized areas are involved. Suchnotification is due at the time the planis completed as required by paragraph(c)(1) of this section. Such notificationmust include the location and normalbusiness hours of the office where theplan will be maintained. Upon request,plans must be made available to theSuperintendent.

(3) The plan must include thefrequency and method of the lessee'sinspection and production volumerecordation. The Superintendent may,upon examination, require adjustmentof the method or frequency ofinspection.

(d) Site facility diagrams. (1) Facilitydiagrams are required for all facilitieswhich are used in storing oil/condensate. Facility diagrams must befiled within 60 calendar days after newmeasurement facilities are installed orexisting facilities are modified.

(2) No format is prescribed for facilitydiagrams. They are to be prepared on812" x 11" paper, if possible, and belegible and comprehensible to a personwith ordinary working knowledge of oilfield operations and equipment. Thediagram need not be drawn to scale.

(3) A site facility diagram mustaccurately reflect the actual conditionsat the site and must, commencing withthe header if applicable, clearly identifythe vessels, piping, metering system,and pits, if any, which apply to thehandling and disposal of oil, gas andwater. The diagram must indicate whichvalves must be sealed and in whatposition during the production or salesphase. The diagram must clearlyidentify the lease on which the facilityis located and the site security plan towhich it is subject, along with thelocation of the plan.

§226.66 What are a lessee's reportingrequirements for accidents, fires, theft, andvandalism?

Lessees must make a complete reportto the Superintendent of all accidentsenvironmental or otherwise, fires, oracts of theft and vandalism occurring onthe leased premises as soon asdiscovered, but not later than the nextbusiness day. Said report must includean estimate of the volume of oilinvolved. Lessees also are expected toreport such thefts within one businessday to local law enforcement agencies,internal company security. Lessees mustalso notify or attempt to notify thesurface owner or his/her designatedagent in writing by U.S. mail of anysuch incident covered under thissection.

Subpart F-Penalties

§226.67 What are the penalties forviolations of lease terms?

Unless otherwise set forth in a lease,violations of any of the terms orconditions of any lease or of theregulations in this part will subject thelease to termination by theSuperintendent, or Lessee to a fine ofnot more than $500 per day for each dayof such violation or noncompliancewith the orders of the Superintendent,or to both such fine and termination ofthe lease. Fines not received within 10business days after notice of thedecision will be subject to late chargesat the rate of not less than 11/2 percentper month for each month or fractionthereof until paid.

§226.68 What are the penalties forviolation of certain operating regulations?

Unless otherwise set forth in a lease,in lieu of the penalties provided under§ 226.67, penalties may be imposed by

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the Superintendent for violation ofcertain sections of the regulations of thispart as follows:

(a) For failure to obtain permission tostart operations required by § 226.34(a),$50 per day.

(b) For failure to file records requiredby § 226.56, $50 per day untilcompliance is met.

(c) For failure to mark wells or tankbatteries as required by § 226.58, $50per day for each well or tank battery.

(d) For failure to construct andmaintain pits as required by§ 226.44(b)-(d), $50 for each day afteroperations are commenced on any welluntil compliance is met.

(e) For failure to comply with § 226.60regarding control of wells, $100 per day.

(f) For failure to notifySuperintendent before drilling,redrilling, deepening, plugging, orabandoning any well, as required by§§ 226.34(b)-(c) and 226.49, $200 perday.

(g) For failure to properly care for anddispose of deleterious fluids as provided

in § 226.44(e), $500 per day untilcompliance is met.

(h) For failure to file plugging reportsas required by § 226.53(d) and for failureto file reports as required by § 226.26,$50 per day for each violation untilcompliance is met.

(i) For failure to perform or start anoperation within 5 calendar days afterordered by the Superintendent inwriting under authority provided in thispart, if said operation is thereafterperformed by or through theSuperintendent, the actual cost ofperformance thereof, plus 25 percent.

Subpart G-Appeals and Notices

§226.69 Who can file an appeal?

Any person, firm or corporationaggrieved by any decision or orderissued by or under the authority of theSuperintendent, by virtue of theregulations in this part, may appealpursuant to 25 CFR part 2.

§226.70 Are the notices by theSuperintendent binding?

Notices and orders issued by theSuperintendent to the representative arebinding on the lessee. TheSuperintendent may in his/herdiscretion increase the time allowed inhis/her orders and notices.

§226.71 Information collection.The collections of information in this

part have been approved by the Officeof Management and Budget under 44U.S.C. 3501 et seq. and assigned OMBControl Number 1076-0180. Response isrequired to obtain or retain a benefit. AFederal agency may not conduct orsponsor, and you are not required torespond to, a collection of informationunless it displays a currently valid OMBControl Number.

Dated: May 4, 2015.Kevin K. Washburn,Assistant Secretary-Indian Affairs.

[FR Doe. 2015-11314 Filed 5-8-15; 8:45 am]

BILLING CODE 4337-15-P

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united states department of the interior bureau of indian

Documents