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Oil & Gas Leasing Instructions

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Available lands for leasing | Lessee Qualifications | Types of O&G Leases 
Competitive Leasing Non-competitive LeasingLease Terms

Introduction

The Mineral Leasing Act of 1920, as amended, and the Mineral Leasing Act for Acquired Lands of 1947, as amended, give the Bureau of Land Management (BLM) responsibility for oil and gas leasing on about 570 million acres of BLM, national forest, and other Federal lands, as well as private lands where mineral rights have been retained by the Federal Government. The BLM works to assure that development of mineral resources is in the best interests of the Nation.

Regulations that govern the BLM's oil and gas leasing program may be found in Title 43, Groups 3000 and 3100, of the Code of Federal Regulations, a publication available in law libraries and most large public libraries.

Lands Available For Leasing

Public lands are available for oil and gas leasing only after they have been evaluated through the BLM's multiple-use planning process. In areas where development of oil and gas resources would conflict with the protection or management of other resources or public land uses, mitigating measures are identified and may appear on leases as either stipulations to uses or as restrictions on surface occupancy.

Lessee Qualifications and Limitations

Federal oil and gas leases may be obtained and held by any adult citizen of the United States. No lease may be acquired by a minor, but a lease may be issued to a legal guardian or trustee on behalf of a minor. Associations of citizens and corporations organized under the laws of the United States or of any State also qualify.

Aliens may hold interests in leases only by stock ownership in U.S. corporations holding leases and only if the laws of their country do not deny similar privileges to citizens of the United States. They may not hold a lease interest through units in a publicly traded limited partnership.

Types of Oil and Gas Leases

The BLM issues two types of leases for oil and gas exploration and development on lands owned or controlled by the Federal Government - competitive and noncompetitive.

The Congress passed the Federal Onshore Oil and Gas Leasing Reform Act of 1987 to require that all public lands that are available for oil and gas leasing be offered first by competitive leasing. Noncompetitive oil and gas leases may be issued only after the lands have been offered competitively at an oral auction and not received a bid.

The maximum competitive lease size is 2,560 acres in the lower 48 States and 5,760 acres in Alaska. The maximum noncompetitive lease size in all States is 10,240 acres.

Since passage of the Energy Policy Act of 1992, both competitive and noncompetitive leases are issued for a 10-year period. Both types of leases continue for as long thereafter as oil or gas is produced in paying quantities.

Competitive Leasing Process

Oral auctions of all oil and gas leases are conducted by BLM State Offices not less than quarterly when parcels are available. A Notice of Competitive Lease Sale, which lists lease parcels to be offered at the auction, will be published by each BLM State Office at least 90 days before the auction is held. Lease stipulations applicable to each parcel are specified in the Sale Notice.

 

Non-Competitive Offers

Noncompetitive leases may be issued only for parcels that have been offered competitively and failed to receive a bid.

The lands in expired, terminated, relinquished, or canceled leases will not be available for noncompetitive leasing until they have been offered competitively in a Sale Notice for an auction and failed to receive a bid. A noncompetitive presale offer may be filed on such lands if the prior lease expired or terminated or was relinquished or canceled at least one year before the presale offer is submitted to the proper BLM State Office.

Following an auction, all lands that were offered competitively but received no bids will be available for noncompetitive lease issuance for two years, beginning the first business day following the last day of the auction, as specified in the Sale Notice.

For noncompetitive leasing, each offer must be submitted on a separate lease offer form. From the first business day following the auction through the last day of the same month, lands must be identified only by the parcel identification number as specified in the Sale Notice. Thereafter, and until the end of the two years of noncompetitive availability, offers must use legal land descriptions and are not limited to the parcel configurations offered at the auction.

Offers must be made on a BLM-approved form. They must include payment of a $390 nonrefundable filing fee and the first year's advance rental of $1.50 per acre.

All noncompetitive lease offers filed on the first business day following the auction will be considered as having been filed simultaneously. The priority among any multiple offers received on this day for the same parcel will be determined by drawings open to the public. Offers received on subsequent days will receive priority according to the time of filing; for example, an offer filed at 10:15 a.m. will have priority over an offer filed at 10:16 a.m.

Noncompetitive Offer (NCO) to Lease - (Presale)
A noncompetitive offer (presale) is a formal nomination for lands to be included in an oil and gas competitive oral auction. The offeror receives priority as of the time and date the offer is filed in the proper BLM office. If no bid is received at the oral auction, the noncompetitive lease shall issue, all else being regular, to the applicant. A noncompetitive offer must be made on Form 3100-11, Offer to Lease and Lease for Oil and Gas (6/88 or later edition). You must submit at least one original plus two copies. They must be typewritten or printed in ink and manually signed in ink and dated by offeror or offeror's authorized agent. The offer must include a $390 filing fee and first year's advance rental of $1.50 per acre or fraction thereof. Remember to round up your acreage when calculating rental. Executing the lease form signifies agreement to standard lease stipulations and/or any additional stipulations posted to lands on a competitive sale notice. NCO's cannot be held confidential.

Do Your Homework:
Regulations pertaining to NCO's can be found at 43 Code of Federal Regulations (CFR) 3110.
BLM cannot place for sale lands under lease or lands where mineral ownership is not federally owned. Check plat notations on patents for mineral ownership reserved by the United States.
Further lands not available to leasing include but are not limited to:
Lands within city limits
Lands withdrawn from mineral leasing
Wilderness areas (WSA/DWA)
Lands within an Indian Reservation
Lands with mineral entry applications
Patented mining claims
Lands posted in a Notice of Competitive Lease Sale

In addition, you cannot file on lands which are in the one-year period commencing upon expiration, relinquishment, or cancellation of the prior lease. While you cannot file a noncompetitive offer for lands which are in the one-year period from the date the prior lease died, you can file an expression of interest (EOI) for these same lands.

By mail, the applicant will receive a pink copy of the accounting advice showing the serial number assigned to the offer. Please refer to this serial number should you have any questions relating to the offer.

An NCO cannot be for less than 640 acres or one full section, whichever is larger. Contiguous lands must be included when necessary to meet the 640 acres. Offers for less than 640 acres are acceptable where there are no contiguous lands available for lease. Where an offer exceeds 640 acres, the offer may contain less than all available lands within a section.

The maximum offer is 10,240 acres entirely within six mile square.

Do not mix public domain land and acquired land. These two land types cannot issue under one lease.

Do not mix acquired lands with varying ownership interest.

Do not mix BLM lands with lands of a different surface management agency (SMA). These two land types cannot issue under one lease.

Do not include lands which are both inside and outside a unit agreement.

WSA lands and boundaries are not shown on plats or noted in the margin. We do have a map available, called "National Landscape Conservation System," which details the WSA's and is available in the public room.

Noncompetitive Offer (NCO) to Lease - Two Year Window Lands - (Postsale)

A noncompetitive offer on two-year window lands is a noncompetitive offer on lands that have been through a competitive sale and receive no bids at the sale or at the day after drawing. An NCO must be made on Form 3100-11, Offer to Lease and Lease for Oil and Gas (6/88 or later edition). You must submit at least one original plus two copies. They must be typewritten or printed in ink and manually signed in ink and dated by offeror or offeror's authorized agent. The offer must include a $390 filing fee and first years advance rental of $1.50 per acre or fraction thereof. Executing the lease form signifies agreement to standard lease stipulations and/or any additional stipulations posted to lands on a competitive sale notice. The offeror receives priority as of the time and date the offer is filed in the proper BLM office. NCO's cannot be held confidential.

The maximum offer is 10,240 acres and minimum is 640 acres. Previous stated rules regarding the 640 minimum apply.

Offers Filed During Month of Sale: Offers filed from the first day following the end of the competitive sale until the end of that same month (parcel integrity period) must be made for the entire parcel included in the sale notice and must describe the lands by that single parcel number appearing in the sale notice.

Offers Filed After Parcel Integrity Period and During Remainder of Two-Year Period: Any filing made after the end of the month in which a sale is held may not be filed by he parcel number, but shall be filed by the legal land description. An offer filed after the end of the parcel integrity period may include all or a portion of a parcel or may include a combination of parcels and shall be filed in accordance with 43 CFR 31103-3 with respect to minimum lease offer size.

Withdrawal of Offer in Whole or in Part:
A presale offer may be withdrawn by the offeror at any time prior to issuance of the noncompetitive lease.

A postsale lease offer may be withdrawn by the offeror if the request to withdraw the offer is received by the proper BLM office after 60 days from the date of filing of the offer and prior to lease issuance. If a postsale offer is withdrawn after 60 days from the date of filing, the lands would continue to be available for noncompetitive leasing for the remainder of the two-year period.

If a public domain mineral offer is partially withdrawn, the lands retained in the offer must total (in the lower 48 states) 640 acres or one full section or include all available lands within a section where there are no contiguous lands available.

Lands Included In The Sale Notice Come From Two Sources:

(1) Parcels identified by informal expressions of interest from the public or by the BLM for management reasons; or

(2) Lands included in offers filed for noncompetitive leases.

All auctions are conducted with oral bidding. Bidders must attend the auction to obtain a competitive lease or provide for someone to represent them. No sealed or mailed bids are accepted.

On the day of the auction, the successful bidder must submit a properly executed lease bid form, which constitutes a legally binding lease offer, and pay a share of the sale costs ($150 per lease); the first year's advance rental ($1.50 per acre or fraction thereof); and not less than the $2-per-acre minimum bonus bid. The balance of the bonus bid must be received within 10 working days of the auction. Those bidders who fail to submit the balance of the bonus on time will forfeit their entire deposit money.

Remittances associated with the leasing process may be made by personal check, cashier's check, certified check, or money order, made out to Department of the Interior-BLM . VISA or MasterCard may also be used. Cash is not accepted.

Lease Terms And Conditions

The lease grants the lessee the right to explore and drill for, extract, remove, and dispose of oil and gas deposits, except helium, that may be found in the leased lands.

Subject to special restrictions as noted above, the leases are granted on the condition that the lessee will have to obtain BLM approval before conducting any surface-disturbing activities. The oil and gas lease conveys the right to develop those resources on the leased land. The lessee or his/her operator cannot build a house on the land, cultivate the land, or remove any minerals other than oil and gas from the leased land.  

Bonding  

Before any surface-disturbing activities related to drilling can begin, the lessee or his/her operator must furnish a bond in the amount of at least $10,000 to ensure compliance with all the lease terms, including protection of the environment. With the consent of the surety and principal, the operator may use the bond of another party such as the lessee. Each time there is a new operator, that operator must notify the BLM that he/she is the responsible operator, giving the particulars of the bond under which he/she will operate.

Acceptable instruments of bonding are surety bonds, or personal bonds accompanied by negotiable Treasury securities, cashier's check, certified check, certificate of deposit, or irrevocable letter of credit.

The BLM may require an increase in the bond amount any time conditions warrant such an increase.

Rentals

Annual rental rates for both competitive and noncompetitive leases are $1.50 per acre (or fraction thereof) in the first 5 years and $2.00 per acre each year thereafter. After the lease is issued, rentals must be received at the Department of the Interior's Office of Natural Resources Revenue (ONRR) on or before the lease anniversary date to prevent statutorily required automatic termination of the lease. This requires mailing of the annual rental at least a week or 10 days in advance of the lease anniversary date to ensure timely receipt by ONRR.

Royalties

Royalty on production is 12.5 percent for both competitive and noncompetitive leases.

Assigning A Lease

Some people who acquire an oil and gas lease will assign the lease to another party. The value of oil and gas leases varies greatly. None of the parcels offered has been evaluated by the BLM for oil and gas potential prior to the competitive auction or to being made available for noncompetitive leasing. All of the lands included in noncompetitive leases have been offered at auction and received no bids.

Leases may be transferred by assignment or sublease. The transfer must be submitted to the BLM for approval within 90 days from the date of execution by the transferor. The rights of any transferee will not be recognized by the Government, and the transferor will remain responsible for the lease, until the transfer has been approved by the BLM. An assignment either of a separate zone or deposit or of part of a legal subdivision will not be approved. An assignment of less than 640 acres outside of Alaska or of less than 2,560 acres within Alaska will be approved by the BLM only if the assignment constitutes the entire lease or is demonstrated to further the development of oil and gas.

How A Lease Expires Or Terminates

Oil and gas leases expire at the end of their primary term - the 10th year - unless diligent drilling operations are in progress on or for the benefit of the lease; the lease contains a well capable of producing oil or gas in paying quantities; or the lease is receiving or is entitled to receive an allocation of production under the terms of an approved communitization agreement or unit agreement.

Leases without a producible well automatically terminate if the lessee fails to make full and timely payment of the annual rental. The rental must be received by the proper Federal office on or before the anniversary date of the lease. The automatic termination is specifically prescribed by law, is not the result of BLM action, and cannot be waived.

The owner of a lease also may surrender the lease in whole or in part by filing a written relinquishment with the proper BLM State Office having jurisdiction over the lands. A relinquishment takes effect on the date it is filed. However, the lessee must plug any abandoned well, perform other work as may be required by the BLM to place the leasehold in proper condition for abandonment, and bring his/her account into good standing. If the lessee fails to perform the necessary work, the lessee's bond will be used to do so, and the lessee will be prohibited from leasing any additional Federal lands.

A non-producing lease may be canceled for failure to comply with lease terms.

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