Beneficial Use Policy – Fuel Gas Use for Water Production Tanks

United States Department of the Interior
BUREAU OF LAND MANAGEMENT
Wyoming State Office

P.O. Box 1828

Cheyenne, Wyoming 82003-1828

In Reply Refer To:
3100 (921Madrid) (P)
May 15, 2007
Instruction Memorandum No. WY-2007-24
Expires: 9/30/2008
To: Field Managers, Deputy State Director, Minerals and Lands
From: Acting State Director
Subject: Beneficial Use Policy – Fuel Gas Use for Water Production Tanks
Objective
The objective of this Instruction Memorandum (IM) is to clarify Wyoming policy regarding gas
used to fuel burners in order to heat water production lines, valves, and tanks, specifically as it
relates to: (1) claims for beneficial use; and (2) reporting of production.
Background/Issue
Recently conducted field inspections of several producing Federal oil and gas leases have found
numerous instances of gas burners being utilized in water production tanks. Gas burners used in
water tanks are primarily used to heat the water to help keep water and valves from freezing in
cold temperatures, and also for evaporating produced water.
Field inspections have found fuel gas used for the heating of water lines, valves, and tanks on
lease (or communitized tract, or unitized participating area) is often not being metered or
reported on oil and gas operation production reports (OGORs) when submitted to the Minerals
Management Service (MMS). Some operators may believe that the heating of water lines,
valves, and tanks meets the NTL-4A definition of beneficial purposes.
Section 16 of the Mineral Leasing Act, (30 U.S.C. 225) as amended, states in part: “That all
permits and leases of lands … containing gas, shall be subject … to the further condition that
the permittee or lessee will, in conducting his explorations and mining operations, use all
reasonable precautions to prevent waste of oil or gas developed in the land … .” Also, 43 CFR
3162.7-1(d) provides the operator shall conduct operations in such a manner as to prevent
avoidable loss of oil and gas. The operator shall be liable for royalty payments on oil or gas lost
or wasted from a lease site, or allocated to a lease site, when such loss or waste is due to
negligence on the part of the operator of such lease, or due to the failure of the operator to
comply with any regulations, order, or citation issued pursuant to this part. 43 CFR 3160.0-5
defines waste of oil or gas as any act or failure to act by the operator that is not sanctioned by
the authorized officer as necessary for proper development and production and which results in:

(1) a reduction in the quantity or quality of oil and gas ultimately producible from a reservoir
under prudent and proper operations; or (2) avoidable surface loss of oil or gas. Section 4 of the
standard oil and gas lease terms states that the lessee shall exercise reasonable diligence in
developing and producing, and shall prevent unnecessary damage to, loss of, or waste of leased
resources.
Policy
BLM’s responsibilities are to ensure that (1) reported monthly production volumes of oil, gas,
and water accurately reflect the actual volumes produced and sold or removed during the month
on a lease, communitized tract, or unit participating area basis, whichever is appropriate; (2) the
procedures used to measure production are performed in accordance with established standards;
and (3) operations conform to lease and regulation standards necessary to prevent waste.
Upon review of existing BLM guidance, we conclude that fuel gas used for the heating of water
lines, valves, and tanks does not meet the definition of beneficial purposes (NTL-4A). The
heating of water to prevent freeze up or to evaporate water from water production tanks is
viewed as an operational convenience and not necessary for placing the produced products in a
marketable condition. The use of fuel gas for heating lines, valves, and tanks without proper
payment of royalty is a waste of gas and is in violation of the standard lease terms and
regulations. The disposal of produced water can be handled by other means including reinjection,
trucked off site for disposal, or discharged on the surface subject to applicable
permitting requirements. Water production lines, valves, and tanks can be insulated and/or heat
traced to help prevent freezing in cold winter conditions.
If the operator concludes gas burners are the only method possible for use in water production
lines, valves, and tanks to ensure continued operations in cold winter conditions (gas burners
are usually not necessary or have limited use for the non-winter months), then they should seek
approval for this use from the Authorized Officer (AO) by submitting a request on a Sundry
Notice, Form 3160-5. At minimum, the following will be required to be specified in the request
in order to approve the action: (1) fuel gas used must be metered pursuant to Onshore Order No.
5; (2) gas burner fuel volumes will be reported on the OGOR; (3) the operator agrees to pay
royalty on all gas used to fuel the gas burners; and (4) if appropriate, obtain approval from the
AO to dispose water by means of evaporation. The AO can establish conditions of approval to
satisfy requirements to ensure safety of Federal employees and the public at large.
The State Office is further investigating the use of gas burners on both water and condensate
tanks. Once our analysis is complete, we will provide you with additional guidance on the
continued use of gas burners. In the meantime, please follow the guidance outlined in this
Instruction Memorandum.
Time Frame
This policy should be implemented immediately.
Coordination
Coordination between the State Office, the AO, and appropriate staff will be necessary to
ensure that everyone is aware of these requirements and implementation of this policy.

Budget Implications
While this policy will require additional time, effort, and administrative support to implement,
the policy requires no significant budget implications.
If you have any questions, please contact Alan Rabinoff 307-775-6148 or Michael Madrid 307-
775-6201.
/s/ Alan Rabinoff