Osage Land Oil Lease Rules Tightened

WASHINGTON (CN) - Oil and gas extraction on Osage Nation land will be subject to updated operational requirements starting July 10.

On Oct. 14, 2011, the U.S. Government and the Osage Nation, in Osage County, Okla., signed a settlement agreement stemming from a lawsuit filed over the alleged mismanagement of the "Osage Mineral Estate," among other claims, by the DOI's Bureau of Indian Affairs.

Under the settlement, the United States paid the tribe $380 million to compensate it for its claims of historical losses to its trust funds and interest income as a result of the government's management of trust assets.

The parties also will implement measures that will lead to strengthened management of the tribe's trust assets and improved communications between the Department of the Interior and the tribe, including procedures for delivery of periodic statements of account, annual audit information, and information relating to the management of the mineral rights tribe. Importantly, the agreement also provides dispute resolution provisions to reduce the likelihood of future litigation.

The parties also agreed to "address means of improving the trust management of the Osage Mineral Estate, the Osage Tribal Trust Account and other accounts" through a "negotiated" rulemaking that aims to protect the Osage Nation's interests.

A new Department of Interior rule clarifies the management responsibilities and authority of the Osage mineral estate superintendant, increases filing fees for lessees and assigns to them responsibility for plugging and abandoning wells "upon surrender." It also increases rental rates and adds a new provision "allowing the Osage Minerals Council to request a determination as to the diligent development of a lease and new procedures for the automatic termination of a lease for failure to diligently develop."

Under the new rule, lessees are obligated to protect the land from oil and gas drainage, and provide protective action if it does occur, and are subject to adjusted royalty rates for the subsequent sale of oil and gas harvests.

"The final rule clarifies that royalty may be taken in-kind," according to the rule's language. "It also amends the royalty rate calculation for oil, subject to a price adjustment for gravity. 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 an alternative manner where reasonable cost of processing cannot be obtained; and adds a minimum royalty provision."

The Osage Nation must also be compensated for "avoidably" lost oil and gas, allowing the superintendant to determine the volume and quantity of the loss.

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