Lessee Qualifications and Limitations

Lease Terms and Conditions

Fees, Rentals and Royalty Rates

Bonding
      Personal and Surety Bond Definitions
      Bond Coverage (Liability) Amounts

Expired, Terminated and Relinquished Leases
  

Lessee Qualifications and Limitations:

Citizens and corporations of the United States may acquire and hold federal leases or interest therein.  A lease may be issued to a legal guardian or trustee on behalf of a minor.  Leases or interests therein may be acquired and held by aliens only through stock ownership, holding or control in a present or potential lessee that is incorporated under the laws of the United States, provided their country affords U.S. citizens the same rights and privileges.  However, they cannot hold lease interest through units in a publicly traded limited partnership.

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.  Prior to conducting any surface-disturbing activities, the lessee will have to obtain BLM's approval.

An oil and gas lease conveys to the lessee the right to develop resources on the leased lands. The lessee nor the operator cannot build a house on the land, cultivate the land, or remove any minerals other than oil and gas from the leased land.

Fees, Rentals and Royalty Rates:

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 or fraction thereof each year thereafter.  All filing fees, requests for approval of transfers (Assignments) and all first-year rentals and bonus bids shall be made payable to the Department of the Interior - Bureau of Land Management. Payments should be mailed to BLM/Eastern States, 7450 Boston Boulevard, Attn: Accounts Section, Springfield, VA  22153.

All second-year and subsequent rentals must be received on or before the lease anniversary date.  Remittance shall be made payable to the Department of the Interior - Minerals Management Service and mailed to this address:

All rentals and royalties on producing leases, communitized leases in producing well units, unitized leases in producing unit areas, leases on which compensatory royalty is payable and all payments under subsurface storage agreements and easements for directional drilling shall be paid to Minerals Management Service.  Royalty on production is 12.5 percent for both competitive and noncompetitive leases.

On Class II reinstated noncompetitive leases, the annual rental rate will increase to $5.00 per acre or fraction thereof and/or royalty payable at the rate of 16-2/3 percent.  On Class II reinstated competitive leases, the annual rental rate will increase to $10 per acre or fraction thereof and/or royalty payable at a rate not less than 16-2/3 percent (plus an additional 2 percentage-point increase added for each succeeding reinstatement).

Bonding:

Federal Regulations, 43 CFR 3104.2 requires that a bond be furnished before any drilling or surface disturbance activities begins.  The lessee, sublessee or the operator must furnish a surety or personal 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 BLM that he/she is the responsible operator, giving the particulars of the bond under which he/she will operate.  BLM can require an increase in a bond amount any time conditions warrant such an increase.

Coverage options are available on the "Oil and Gas or Geothermal Lease Bond" form, Form 3000-4, (June 1988).  Use of this form is mandatory when submitting your bond to the BLM.  For more information - click here.

Personal and Surety Bond Definitions:

Personal Bond - Bonds secured by Cashier's check, Certified check, Certificate of Deposit, and Irrevocable Letter of Credit, Negotiable Treasury Securities.

Surety Bond - The original copy of the Surety bond must be filed in the proper BLM State Office on a form approved by the BLM, along with a Power of Attorney for the person signing on behalf of the surety.  The Surety for any Federal bond must be approved as an acceptable surety by the Department of the Treasury.  A list of acceptable sureties can be found in Dept. Circular 570; 2000 Revision.  This circular can be obtained from the Department of the Treasury, Financial Management Service, Surety Bond Branch, 3700 East West Highway, Room 6A04, Hyattsville, MD 20782. Telephone (202) 874-6850 or Fax (202) 874-9978.

Bond Coverage (Liability) Amounts:

The following instruments are acceptable forms of bond coverage:

Lessee's, Statewide and Nationwide bonds;
Surety bonds;
Personal bonds accompanied by negotiable Treasury securities;
Cashier's check, certified check, certificate of deposit; or Irrevocable Letter of Credit.

Individual Bond/Lessee Bond -$10,000 covers operations for one Oil and Gas lease.  Must be filed in the proper BLM State Office.
Statewide Bond Coverage -$25,000 covers Statewide Operations for Oil and Gas leasing.  Must be filed in the proper BLM State Office.
Nationwide Bond Coverage - $150,000 covers Nationwide Operations, may be filed in any State Office.

Expired, Terminated and Relinquished Leases

Oil and gas leases expire at the end of their 10-year term for competitive or noncompetitive leases.  However, the primary lease term is extended if: (1) diligent drilling operations is in progress, (2) the lease contains a well capable of producing oil or gas in paying quantities, or (3) 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 terminates if the lessee fails to make full and timely payments 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 prescribed by law and cannot be waived.

However, terminated leases may be reinstated under a Class I reinstatement if the following conditions are met:

1. annual rental was received by MMS within 20 days after the anniversary date;
   
   
2. failure to timely submit the rental was justifiable and not due to a lack of reasonable diligence (effort) by the lessee;
   
   
3. a petition for reinstatement must be filed within 60 days after receipt of the termination notice, along with a nonrefundable filing fee of $25 for each lease and any required rental, including any rental at the rate specified in the lease terms that has accrued from the date of termination of the lease;
   
   
4. the oil and gas interests has not been disposed of or has otherwise become unavailable for leasing, and
   
   
5. a new oil and gas lease has not been issued for any of the lands affected by the terminated lease.
   

Leases are reinstated under a Class II reinstatement if the following conditions are met:

1. the annual rental is paid to the MMS either before or after 20 days from the anniversary date or to the BLM with a petition for reinstatement and the reason for the late payment is do to inadvertence;
   
   
2. the rental is not paid within 20 days after the lease anniversary date and it is shown to the satisfaction of the authorized officer that such failure was justified or not due to a lack of reasonable diligence;
   
   
3. a new oil and gas lease has not been issued for any of the lands affected by the terminated lease;
    
4. the oil and gas interests has not been disposed of or has otherwise become unavailable for leasing;
    
5. the petition for reinstatement is filed within 60 days after receipt of the termination notice (or within 15 months of the termination date if no termination notice was received by the lessee);
   
   
6. all back rental and/or royalty at the increased rates must be paid within 60 days of receipt of the termination notice;
   
   
7. a $500 administrative reinstatement fee per lease is required, along with a $125 deposit (amount subject to change) for the cost of publication in the Federal Register.
   

A lessee may relinquish his/her lease in whole or in part by filing a written relinquishment request with the proper BLM State Office. A relinquishment takes effect on the date it is filed.  However, if the lease is producing, 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.  The lease account must be in 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.