U.S. oil and natural gas trade groups are calling foul on a proposal by federal officials to collect royalties on gas that is vented or flared.


The proposal, first announced in November, would replace what the Bureau of Land Management (BLM) called an “outdated” and “ill-suited” ruling that came about before the boom of unconventional exploration and production activities. 

The new ruling is meant to curb methane pollution from oil and gas operations on federal and tribal lands. Regulations also would prevent “undue waste,” in part by imposing royalties on vented or flared natural gas. 

We Like Some Of It

In response, energy advocates last month sent proposed revisions for BLM to consider in the final rulemaking. The trade groups included the American Petroleum Institute (API), the American Exploration & Production Council, the Alaska Oil & Gas Association, the Montana Petroleum Association, the Petroleum Alliance of Oklahoma, the New Mexico Oil & Gas Association and the North Dakota Petroleum Council.

“Overall, we support elements of BLM’s streamlined approach,” the groups said. The elements they support include omitting “problematic provisions” of a 2016 rule and limiting the requirements to leases on federal and Indian lands. They also called for more flexibility in dealing with leak detection and oil storage tank provisions.

However, the energy groups are opposed to other measures. Chief among them is a requirement for a waste minimization plan (WMP) for all permit to drill applications (APD). State and federal authorities approve APDs before wells may be drilled.

BLM said the WMP would provide “information on anticipated associated gas production, the operator’s capacity to capture that gas production for sale or use, and other steps the operator commits to take to reduce or eliminate gas losses.”

While “not entirely opposed” to the WMP, API and others said it would be “unrealistic and arbitrary” to assume individual operators and BLM could determine the capacity of “every segment of every midstream gathering system at the exact time every future well is drilled.” 

The groups also called on BLM to remove the section of the proposed ruling that would allow a WMP to be deemed insufficient and deny an accompanying APD.

“…As written, overlaying this WMP process on APD decision, which already routinely face delays, will create uncertainty and delays in the permitting process,” the groups said in their comments. 

The Flaring Factor

BLM also wants operators to strengthen their methane mitigation efforts by imposing monthly limits on royalty-free natural gas flaring at well sites.

From 2010 to 2020, BLM said total venting and flaring reported by federal and Native American onshore lessees averaged about 44.2 Bcf/year. This is more than four times the 11 Bcf/year vented and flared from 1990 to 2000, BLM noted, before advancements in horizontal drilling and hydraulic fracturing advanced onshore output.

The proposed flaring rule would limit monthly levels to up to 1,050 Mcf/lease, unit or communitization agreement. Above that level, operators would begin paying royalties on gas that BLM said would be considered “avoidably lost.” 

API and others said in their comments that the gas “in fact is ‘unavoidably lost.’ These limits are arbitrary and unreasonable…The Mineral Leasing Act…, the courts, and even the Inflation Reduction Act uniformly state that unavoidable losses are royalty-free, but the proposed rule unduly limits the volumes of flared gas that are by their definition unavoidably lost. From a practical perspective, BLM’s proposed limits are much too low.”

They urged BLM to consider a minimum 24-hour time limit on royalty-free flaring, which would grant operators time to consider the cause and severity of any midstream interruptions and “correspondingly determine whether to shut in or flare with payment of royalty, and perform manual shut-ins where needed.”

Legal Costs

BLM tagged the monetary losses from vented and flared gas between 2010 to 2020 at $1.46 billion, assuming a $3/Mcf price of gas. 

If accepted as written, BLM estimated in its Regulatory Impact Analysis (RIA) its proposed ruling would benefit the oil industry in recovered gas with a value of about $55 million/year, though it may cost the industry roughly $122 million/year to install the estimated 53,213 pneumatic devices that the ruling may require to retain an estimated 5.93 Bcf/year of gas. 

That said, RIA estimates pinned recovered and flared gas royalties as generating an added $39 million/year in revenue. 

And while the RIA estimates a $427 million/year “benefit to society” in reduced greenhouse gas emissions, BLM noted that “Climate benefits derived from foregone emissions were not a factor in the decision to propose any of the individual waste prevention requirements in this proposed rule.” 

The note stems from a lengthy legal history of BLM attempting to implement similar waste rules. The agency was met with litigation from the Western Energy Alliance (WEA) and Independent Petroleum Association of America (IPAA) in 2016 and 2020. 

The WEA and IPAA submitted individual comments to BLM’s proposal. They noted that a  Wyoming court in 2016 in part vacated a prior proposal because “the aggregate costs were only offset if the agency included the social benefits of the rule as calculated using the global social cost of methane.’”

WEA President Kathleen Sgamma said “BLM can regulate waste of methane, but it does not have the authority to regulate air quality.”

The Environmental Protection Agency (EPA) and states have the legal authority to monitor air quality, “as affirmed by a federal court in striking down a similar rule from the Obama administration. BLM makes some of the same mistakes in this rule as in the rule we successfully overturned,” Sgamma added. 

IPAA CEO Jeff Eshelman also noted that the proposed ruling “infringes on jurisdiction held by the EPA.”