(a) Upon receipt of the supplement to the plan of operations described in § 3142.10(b), the authorized officer will examine the information furnished by the lessee and determine if the estimate of the recoverable tar sand reserves is adequate and reasonable. In making this determination, the authorized officer may request, and the lessee must furnish, any information that is the basis of the lessee's estimate of the recoverable tar sand reserves. As part of the authorized officer's determination that the estimate of the recoverable tar sand reserves is adequate and reasonable, the authorized officer may consider, but is not limited to, the following: ore grade, strip ratio, vertical and horizontal continuity, extract process recoverability, and proven or unproven status of extraction technology, terrain, environmental mitigation factors, marketability of products and capital operations costs. The authorized officer will then establish as soon as possible, but prior to the beginning of the eleventh year, based upon the estimate of the recoverable tar sand reserves, a minimum annual tar sand production schedule for the lease or unit operations which will start in the eleventh year of the lease. This minimum production level will escalate in equal annual increments to a maximum of 1 percent of the estimated recoverable tar sand reserves in the twentieth year of the lease and remain at 1 percent each year thereafter.

(b) The minimum annual tar sand production schedule for the lease or unit operations will be set at a level for paying quantities. If the operator or lessee cannot establish production in paying quantities, the lease will terminate at the end of the lease's primary term.

(a) Failure to meet the minimum annual tar sand production schedule level in any year will result in the assessment of an advance royalty in lieu of production which will be credited to future production royalty assessments applicable to the lease or unit.

(b) If there is no production during the lease year, and the lessee has reason to believe that there will be no production during the remainder of the lease year, the lessee must submit to the authorized officer a request for suspension of production at least 90 days prior to the end of that lease year and a payment sufficient to cover any advance royalty due and owing as a result of the failure to produce. Upon receipt of the request for suspension of production and the accompanying payment, the authorized officer may approve a suspension of production for that lease year and the lease will not expire during that year for lack of production.

(c) If there is production on the lease or unit during the lease year, but such production fails to meet the minimum production schedule required by the plan of operations for that lease or unit, the lessee must pay an advance royalty within 60 days of the end of the lease year in an amount sufficient to cover the difference between such actual production and the production schedule required by the plan of operations for that lease or unit and the authorized officer may direct a suspension of production for those periods during which no production occurred.

Failure of the lessee to pay advance royalty within the time prescribed by the authorized officer, or failure of the lessee to comply with any other provisions of this subpart following the end of the primary term of the lease, will result in the automatic expiration of the lease as of the first of the month following notice to the lessee of its failure to comply. The lessee will remain subject to the requirement of applicable laws, regulations and lease terms which have not been met at the expiration of the lease.

This subpart provides definitions and procedures for meeting the production in paying quantities and the diligent development requirements for tar sand in all combined hydrocarbon leases and tar sand leases.

These regulations are issued under the authority of the Mineral Leasing Act of 1920, as amended and supplemented (30 U.S.C. 181 et seq.), the Mineral Leasing Act for Acquired Lands (30 U.S.C. 351-359), the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1701 et seq.) and the Combined Hydrocarbon Leasing Act of 1981 (95 Stat. 1070).

As used in this subpart, the term:

Production in paying quantities for combined hydrocarbon leases means:

(1) Production, in compliance with an approved plan of operations and by nonconventional methods, of oil and gas which can be marketed; or

(2) Production of oil or gas by conventional methods as the term is currently used in 43 CFR part 3160.

Production in paying quantities for oil and gas leases means production of oil or gas by conventional methods that meets the definition of “production in paying quantities” in 43 CFR 3160.0-5.

Production in paying quantities for tar sand leases means production of shale oil quantities that provide a positive return after all costs of production have been met, including the amortized costs of the capital investment.

A lessee will have met its diligent development obligation if:

(a) The lessee is conducting activity on the lease in accordance with an approved plan of operations; and

(b) The lessee files with the authorized officer, not later than the end of the eighth lease year, a supplement to the approved plan of operations which must include the estimated recoverable tar sand reserves and a detailed development plan for the next stage of operations;

(c) The lessee has achieved production in paying quantities, as that term is defined in § 3142.5(a), by the end of the primary term; and

(d) The lessee annually produces the minimum amount of tar sand established by the authorized officer under the lease in the minimum production schedule which will be made part of the plan of operations or pays annually advance royalty in lieu of this minimum production.