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What is involved in Federal oil and gas leasing and development?

Federal oil and natural gas leasing and development occur in the following phases:
  • Planning and Leasing
  • Permitting
  • Drilling, Production, Abandonment and Surface Reclamation
How does this process work?

A lot goes into leasing and developing oil and gas on Federal mineral estate.  Here is a simplified step-by-step description of the process from start to finish:

Planning and Leasing

  1. The BLM planning process is the mechanism used to evaluate and determine where and how Federal oil and gas resources will be made available for leasing.
    • Areas where oil and gas development will conflict with other land uses or resources despite mitigation measures will be closed to leasing.
    • Areas where oil and gas development could coexist with other land uses or resources will be open to leasing.
  2. All leases are subject to the terms and conditions of the lease.
    • Lease rights may be subject to lease stipulations and permit approval requirements.
    • Leases may be issued with or without stipulations based upon decisions in the land use document.
  3. For lands open to leasing, the leasing process is initiated when members of the public file Expressions of Interest (EOI) to nominate parcels for leasing to the BLM.
  4. The BLM considers the nomination and determines whether or not the current conditions on the land being nominated are still suitable for leasing. 
    • If so, the BLM will move forward with developing an Environmental Assessment of the potential impacts of a lease.  Because certain resources in the planning area require protection from impacts associated with oil and gas activities, the leasing Federal agency may recommend lease stipulations.
    • If no longer suitable for leasing, the BLM will defer the nominated lands until further review has been completed.
  5. The BLM then completes an extensive public review and consultation process, as well as an additional environmental review.
  6. The BLM conducts oil and gas lease sales four times a year.  Leases are issued as either a competitive or noncompetitive lease.  Competitive leases are issued to the highest qualified bidder at the auction held at the Montana State Office in Billings, Montana.


If a parcel is sold, the primary lease term is 10 years and can be renewed after the 10 years.  The lease grants the right to explore, extract, remove, and dispose of oil and gas deposits that may be found in the leased lands.  Lease rights may be subject to lease stipulations and permit approval requirements.

A Federal lessee or the operator of record is governed by procedures that cover the full scope of operations on Federal minerals, from initial permitting of the well, to subsequent operations, to final abandonment.

Before beginning construction or drilling a well, the lessee must have an approved Application for Permit to Drill (APD), including requirements for surface and subsurface operations. The APD includes an extensive plan of development which is considered and processed by the BLM.

The lessee or its operator is also required to enter into good-faith negotiations with the private surface owner to reach an agreement for the protection of surface resources and reclamation of the disturbed areas, or payment in lieu thereof, to compensate the surface owner for loss of crops and damages to tangible improvements, if any.

Important Note:  During this phase, the developer usually contacts other entities to ensure compliance with local, county, and state laws and regulations associated with the permit operations.  For instance, the local County would be contacted to obtain a county road permit.

Construction, Drilling, Production, Abandonment and Surface Reclamation

When final approval is given by the BLM, the operator can begin construction and drilling operations using the guidelines in the permit and conditions of approval.  Throughout the life of the development, all disturbed areas not needed for active support of production operations undergo “interim” or ongoing reclamation in order to minimize the environmental impacts of development on other resources and uses.

Once the well is no longer considered productive, the Federal well is plugged and the operator must complete final abandonment reclamation to the satisfaction of the BLM and in consultation with the surface owner. 

For more extensive information on oil and gas information, please visit the BLM Montana/Dakotas Oil & Gas Home Page.

Download the Split Estate Brochure

For more extensive information on oil and gas operations, please visit the Gold Book Surface Operating Standards and Guidelines for Oil and Gas Exploration and Development.