Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases (NTL-4a)

The Notice made clear that gas production (including associated gas) subject to royalty would not include (1) gas used on-site for a beneficial purpose; (2) gas vented or flared with prior authorisation or approval; (3) gas vented or flared subject to State rules; or (4) gas that the Supervisor determines has been “otherwise unavoidably lost”. However, if gas is vented or flared without approval or is “avoidably lost”, the operator must pay royalties on that gas.
The Notice defines “avoidably lost” to include losses that occur as the result of negligence, a failure to “take all reasonable measures to prevent and/or to control the loss, or the failure to fully comply with all lease terms or regulations.
The Notice defines “unavoidably lost” – meaning that the loss would not be subject to royalties – to include loss of vapours from storage tanks, unless the Supervisor determines capture is warranted; line failures, blowouts, fires, or other emergency unless those caused or made worse by negligence or failure to take reasonable measures to prevent or control the situation; and flaring or venting within authorised limits.
Short-term venting or flaring was authorised for emergencies; well purging; and well tests. Otherwise, venting or flaring may not occur at gas wells. Additional venting or flaring may occur at oil wells but only if (1) the Supervisor receives documentation establishing that capture of the gas is not “economically justified” and if required would lead to “premature abandonment of recoverable oil reserves”; or (2) the operator submits an action plan to eliminate venting or flaring within 1 year. 
On June 23, 1980, the Department of the Interior issued a Conservation Division Manual to provide further detail on beneficial use and avoidable and unavoidable loss of gas.

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