BLM overhauls measurement rules, OKs automatic tank gauging

By Mike Soraghan | 10/17/2016 01:15 PM EDT

The Bureau of Land Management announced today that it’s finalized the first overhaul of its rulebook for measuring oil and gas extracted from federal lands.

The changes to the 26-year-old rules are a response to years of criticism from auditors that the federal government hasn’t been getting what it’s owed from oil companies.

BLM officials are hoping the new rules will help get "management of federal oil and gas resources" off the Government Accountability Office’s "High Risk List." BLM officials do not expect them to go into effect until next year.

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The overhaul also includes a response to safety advocates concerned about workers getting poisoned by toxic gases that can flow out of oil hatches. For the first time, the rules specifically authorize tank measurement, or gauging, to be done automatically without opening hatches. However, they do not require it.

Worker-safety researchers have documented at least 10 deaths on both private and public land that they believe are related to inhaling the toxic vapors (EnergyWire, Jan. 28). The gases also create a risk of fire or explosion.

The revisions of "Onshore Orders" 3, 4 and 5 are intended to ensure the accurate measurement, proper reporting and accurate record keeping of oil and gas produced from federal and American Indian leases in order to ensure that the royalties due are paid.

"These new rules also give the BLM the tools to be responsive to new technology," said BLM Director Neil Kornze. "This change is particularly important because changing technology often provides opportunities to make oil field operations safer and more efficient."

BLM estimates the changes will cost the industry $60 million in one-time costs, spread across the first three years, and about $27 million annually.

BLM officials say the one-time costs have dropped about $100 million compared with the proposed rule released about a year ago (Greenwire, Sept. 29, 2015). The annual costs dropped by $32 million. The agency estimates the rules will reduce companies’ net income, on average, less than one-tenth of 1 percent.

Oil measurements determine how much royalties companies pay to the federal government. Federal minerals are one of the largest sources of nontax revenue the government receives.

The total value of production last year was nearly $20 billion, which generated more than $2 billion in royalty revenue from federal leases and nearly $600 million in royalty revenue from American Indian leases. The agency has estimated that about 3,700 lessees and operators on federal and tribal lands could be affected by the rule.

In 2010, GAO found BLM’s regulations "do not provide reasonable assurance that oil and gas are accurately measured" and "do not address current measurement technologies." That’s one of the reasons GAO included the government’s management of oil and gas on its 2015 high-risk report.

The rules won’t be official until they are published in the Federal Register in a few weeks. They go into effect 60 days after publication.

The final rules were designed to be less proscriptive than the draft. Several detailed procedures were deleted in favor of using American Petroleum Institute standards.

The set of rules "grandfathers in" all existing downhole co-mingling, in response to concerns from industry about co-mingling provisions in the draft rules.

In the final rules, BLM also expanded the number of small facilities that can use a less stringent "uncertainty limit."

The rules formally authorize the use of Coriolis measurement systems without operators needing to seek a local variance. In place of the local variance process, BLM is standing up a national "production measurement team" to examine and approve new measurement technologies.

BLM is hoping that the production measurement team system will streamline and accelerate the approval of new measurement technologies.

The old rules have required manual tank gauging unless operators employ a fairly expensive unit called a LACT (lease automatic custody transfer) or seek a variance to use another device.

In most cases, that meant workers — including BLM inspectors — had to climb to the top of tanks to measure crude, exposing them to toxic vapors. Safety advocates say remote devices that allow workers to measure the crude from a distance are safer.

BLM had omitted specific authorization of automatic tank gauging from the proposed rule, saying the agency didn’t have enough data to be sure it would meet its goals. Agency officials say they now have the data they need.

In addition to specific authorization of automatic tank gauging, today’s rules incorporate a recently published API standard on alternative methods of tank measurement (EnergyWire, July 11).

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