Notice to Lessees 4A

UNITED STATES

DEPARTMENT OF THE INTERIOR

GEOLOGICAL SURVEY

Conservation DIVISION

Notice to Lessees and Operators of Onshore

Federal and Indian Oil and Gas Leases

(NTL-4A)

Royalty or Compensation for Oil and Gas Lost

This Notice is issued pursuant to the authority prescribed in the Oil and Gas Operating
Regulations, Title 30 CFR 221, and in accordance with the terms of the Federal and
Indian oil and gas leases under the jurisdiction of the Geological Survey. This Notice
supersedes certain provisions of NTL-4, issued effective December 1, 1974; Supplement
No. 1 to NTL-4, issued effective December 1, 1978, to 10 lessees and operators on a
nationwide basis; and Supplement No. 1 to NTL-4, issued effective December 1, 1978, to
all lessees and operators in Wyoming. Lessees and operators who submitted payments for
royalty on oil and gas lost under these provisions of NTL-4, which are hereby revoked,
may file with the Area Oil and Gas Supervisor (Supervisor) an application for a refund of
those payments in accordance with the addendum attached to this Notice.
I. GENERAL
Oil production subject to royalty shall include that which (1) is produced and sold on a
lease basis or for the benefit of a lease under the terms of an approved communitization
or unitization agreement and (2) the Supervisor determines to have been avoidably lost
on a lease, communitized tract, or unitized area. No royalty obligation shall accrue as to
that produced oil which (1) is used on the same lease, same communitized tract, or same
unitized participating area for beneficial purposes or (2) the Supervisor determines to
have been unavoidably lost.
Gas Production (both gas well gas and oil well gas) subject to royalty shall include that
which is produced and sold on a lease basis or for the benefit of a lease under the terms of
an approved communitization or unitization agreement. No royalty obligation shall
accrue on any produced gas which (1) is used on the same lease, same communitized
tract, or same unitized participating area for beneficial purposes, (2) is vented or flared
with the Supervisor's prior authorization or approval during drilling, completing, or
producing operations, (3) is vented or flared pursuant to the rules, regulations, or orders
of the appropriate State regulatory agency when said rules, regulations, or orders have
been ratified or accepted by the Supervisor, or (4) the Supervisor determines to have been
otherwise unavoidably lost.

Where produced gas (both gas well gas and oil well gas) is (1) vented or flared during
drilling, completing, or producing operations without the prior authorization, approval,
ratification, or acceptance of the Supervisor or (2) otherwise avoidably lost, as
determined by the Supervisor, the compensation due the United States or the Indian
lessor will be computed on the basis of the full value of the gas so wasted, or the
allocated portion thereof, attributable to the lease.
II. DEFINITIONS
As used in this Notice, certain terms are defined as follows:
A. "Avoidably lost" production shall mean the venting or flaring of produced gas
without the prior authorization, approval, ratification, or acceptance of the
Supervisor and the loss of produced oil or gas when the Supervisor determines
that such loss occurred as a result of (1) negligence on the part of the lessee or
operator, or (2) the failure of the lessee or operator to take all reasonable measures
to prevent and/or to control the loss, or (3) the failure of the lessee or operator to
comply fully with the applicable lease terms and regulations, appropriate
provisions of the approved operating plan, or the prior written orders of the
Supervisor, or (4) any combination of the foregoing.
B. "Beneficial purposes" shall mean that oil or gas which is produced from a
lease, communitized tract, or unitized participating area and which is used on or
for the benefit of that same lease, same communitized tract, or same unitized
participating area for operating or producing purposes such as (1) fuel in lifting
oil or gas, (2) fuel in the heating of oil or gas for the purpose of placing it in a
merchantable condition, (3) fuel in compressing gas for the purpose of placing it
in a marketable condition, or (4) fuel for firing steam generators for the enhanced
recovery of oil. Gas used for beneficial purpose shall also include that which is
produced from a lease, communitized tract, or unitized participating area and
which is consumed on or for the benefit of that same lease, same communitized
tract, or same unitized participating area (1) as fuel for drilling rig engines, (2) as
the source of actuating automatic valves at production facilities, or (3) with the
prior approval of the Supervisor, as the circulation medium during drilling
operations. Where the produced gas is processed through a gasoline plant and
royalty settlement is based on the residue gas and other products at the tailgate of
the plant, the gas consumed as fuel in the plant operations will be considered as
being utilized for beneficial purposes. In addition, gas which is produced from a
lease, communitized tract, or unitized participating area and which, in accordance
with a plan approved by the Supervisor, is reinjected into wells or formations
subject to that same lease, same communitized tract, or same unitized
participating area for the purpose of increasing ultimate recovery shall be
considered as being used for beneficial purposes; provided, however, that royalty
will be charged on the gas used for this purpose at the time it is finally produced
and sold.

C. "Unavoidably lost" production shall mean (1) those gas vapors which are
released from storage tanks or other low-pressure production vessels unless the
Supervisor determines that the recovery of such vapors would be warranted, (2)
that oil or gas which is lost because of line failures, equipment malfunctions,
blowouts, fires, or otherwise except where the Supervisor determines that said
loss resulted from the negligence or the failure of the lessee or operator to take all
reasonable measures to prevent and/or control the loss, and (3) the venting or
flaring of gas in accordance with Section III hereof.
III. AUTHORIZED VENTING AND FLARING OF GAS
Lessees or operators are hereby authorized to vent or flare gas on a short-term basis
without incurring a royalty obligation in the following circumstances:
A. Emergencies. During temporary emergency situations, such as compressor or
other equipment failures, relief of abnormal system pressures, or other conditions
which result in the unavoidable short-term venting or flaring of gas. However, this
authorization to vent or flare gas in such circumstances without incurring a
royalty obligation is limited to 24 hours per incident and to 144 hours cumulative
for the lease during any calendar month, except with the prior authorization,
approval, ratification, or acceptance of the Supervisor.
B. Well Purging and Evaluation Tests. During the unloading or cleaning up of a
well during drillstem, producing, routine purging, or evaluation tests, not
exceeding a period of 24 hours.
C. Initial Production Tests. During initial well evaluation tests, not exceeding a
period of 30 days or the production of 50 MMcf of gas, whichever occurs first,
unless a longer test period has been authorized by the appropriate State regulatory
agency and ratified or accepted by the Supervisor.
D. Routine or Special Well Tests. During routine or special well tests, other than
those cited in III.B and C above, only after approval by the Supervisor.
IV. OTHER VENTING OR FLARING
A. Gas Well Gas. Except as provided in II.C and III above, gas well gas may not
be flared or vented. For the purposes of this Notice, a gas well will be construed
as a well from which the energy equivalent of the gas produced, including its
entrained liquid hydrocarbons, exceeds the energy equivalent of the oil produced.
B. Oil Well Gas. Except as provided in II.C and III above, oil well gas may not be
vented or flared unless approved in writing by the Supervisor. The Supervisor
may approve an application for the venting or flaring of oil well gas if justified
either by the submittal of (1) an evaluation report supported by engineering,
geologic, and economic data which demonstrates to the satisfaction of the

Supervisor that the expenditures necessary to market or beneficially use such gas
are not economically justified and that conservation of the gas, if required, would
lead to the premature abandonment of recoverable oil reserves and ultimately to a
greater loss of equivalent energy than would be recovered if the venting or flaring
were permitted to continue or (2) an action plan that will eliminate venting or
flaring of the gas within 1 year from the date of application.
The venting or flaring of gas from oil wells completed prior to the effective date
of this Notice is authorized for an interim period. However, an application for
approval to continue such practices must be submitted within 90 days from the
effective date hereof, unless such venting or flaring of gas was authorized,
approved, ratified, or accepted previously by the Supervisor. For oil wells
completed on or after the effective date of this Notice, an application must be
filed with the Supervisor, and approval receive, for any venting or flaring of gas
beyond the initial 30-day or other authorized test period.
C. Content of Applications. Applications under section B above shall include all
appropriate engineering, geologic, and economic data in support of the applicant's
determination that conservation of the gas is not viable from an economic
standpoint and, if approval is not granted to continue the venting or flaring of the
gas, that it will result in the premature abandonment of oil production and/or the
curtailment of lease development. The information provided shall include the
applicant's estimates of the volumes of oil and gas that would be produced to the
economic limit if the application to vent or flare were approved and the volumes
of the oil and gas that would be produced if the applicant was required to market
or beneficially use the gas. When evaluating the feasibility of requiring
conservation of the gas, the total leasehold production, including both oil and gas,
as well as the economics of a field wide plan shall be considered by the
Supervisor in determining whether the lease can be operated successfully if it is
required that the gas be conserved.
V. REPORTING AND MEASUREMENT RESPONSIBILITIES
The volume of oil or gas produced, whether sold, avoidably or unavoidably lost, vented
or flared, or used for beneficial purposes (including gas that is reinjected) must be
reported on Form 9-329, Monthly Report of Operation, in accordance with the
requirement of this Notice and the applicable provisions of NTL-1 and NTL-1A. The
volume and value of all oil and gas which is sold, vented or flared without the
authorization, approval, ratification, or acceptance of the Supervisor, or which is
otherwise determined by the Supervisor to be avoidably lost must be reported on Form 9361, Monthly Report of Sales and Royalties. Payments submitted in this respect must be
accompanied by a Form 9-614-A, Rental and Royalty Remittance Advice.

In determining the volumes of oil and gas to be reported in accordance with the first and
second paragraphs of this Section V, lessees and operators shall adhere to the following:
1. When the amount of oil or gas involved has been measured in accordance with
Title 30 CFR 221.43 or 221.44, that measurement shall be the basis for the
volume reported.
2. When the amount of oil and gas avoidably or unavoidably lost, vented or
flared, or used for beneficial purposes occurs without measurement, the volume of
oil or gas shall be determined utilizing the following criteria, as applicable:
a. Last measured throughput of the production facility.
b. Duration of the period of time in which no measurement was made.
c. Daily lease production rates.
d. Historic production data.
e. Well production rates and gas-oil ratio tests.
f. Productive capability of other wells in the area completed in the same
formation.
g. Subsequent measurement or testing, as required by the Supervisor.
h. Such other methods as may be approved by the Supervisor.
The Supervisor may require the installation of additional measurement equipment
whenever it is determined that the present methods are inadequate to meet the purposes of
this Notice.
VI. VALUE DETERMINATIONS FOR ROYALTY OR COMPENSATION
PURPOSES
In computing the royalty or compensation due on oil or gas under the provisions of this
Notice, the value shall be computed in the same manner as the Supervisor would have
calculated the value of the oil or gas had it been sold from the same lease, same
communitized tract, or same unitized participating area.

VII. COMPLIANCE
The failure to comply with the requirements of this Notice will result in compliance being
secured by such actions as are provided by law and regulation.

January 1, 1980

/s/ C.J. Curtis

_________________________________ _______________________________
Date

C.J. Curtis
Oil and Gas Supervisor
Northern Rocky Mountain Area

Approved:

/s/ Hillary A. Oden

____________________________________

Hillary A. Oden

Acting Chief, Conservation Division

ADDENDUM TO NTL-4A
Refund Applications
Certain provisions of NTL-4 have been revoked retroactive to December 1, 1974, the
effective date of said Notice. Accordingly, lessees and operators who submitted royalty
payments under the provisions of NTL-4 may apply for a refund of those payments made
for (1) oil that was unavoidably lost or used for beneficial purposes on the lease,
communitized tract, or unitized participating area from which it was produced and/or (2)
gas that was vented or flared with the prior approval of the Supervisor or unavoidably
lost. No refunds will be processed in the absence of such an application, and no refunds
will be made of those payments submitted on the basis of a determination of waste by the
Supervisor. In addition, liquidated damages assessed for the late filing of reports or the
failure to report pursuant to the provisions of NTL-4 will not be refunded.
The application shall be in the form of a letter signed by an authorized officer or agent of
the lessee or operator and for each individual lease shall include:
1. The lease prefix code and lease number.
2. The month and year.
3. The product code (01, 02, 03, 04, 41, or 43) used in the report and payments
previously submitted to the Supervisor.
4. The volume of lost oil and/or gas previously reported and the amount of the
refund requested.
5. The total amount of the refund requested for each lease as a subtotal.
6. The total amount of the refund requested for all leases as a grand total.
Additional instructions in regard to the filing and contents of said applications may be
obtained by contacting the Supervisor having jurisdiction over the lease or leases
involved.
Refund applications will be processed as promptly as possible. The Supervisor, as to
Federal leases, may process a direct refund or authorize the applicant to withhold the
refund amount from future royalty accruals. However, refunds authorized by the
Supervisor with respect to Indian leases will be recoverable only as a credit against future
rental or royalty accruals in accordance with the provisions of Section IX
(Overpayments) of NTL-1A.