General Oil and Gas Leasing Instructions
The BLM issues competitive leases for oil and gas exploration and development on lands owned or controlled by the Federal government.
Congress passed the Inflation Reduction Act of 2022 which rescinded the BLM’s authority to issue noncompetitive leases.
Congress passed the Federal Onshore Oil and Gas Leasing Reform Act of 1987 requiring that all public lands eligible and available for oil and gas leasing be offered by competitive leasing.
The maximum competitive parcel size is 2,560 acres in the lower 48 states and 5,760 acres in Alaska outside of the National Petroleum Reserve-Alaska. The BLM issues a competitive lease for a 10-year period.
BLM State Offices conduct lease sales quarterly when parcels are eligible and available for lease. Each State Office publishes a Notice of Competitive Lease Sale (Sale Notice), which lists parcels to be offered at the auction, usually 45 days before the auction. This notice is posted in the National Fluids Lease Sale System and by the State Office that administers the sale. The Sale Notice specifies lease stipulations applicable to each parcel. The BLM may conduct lease sales in-person or through internet-based auctions.
Lands offered in the Sale Notice come from two sources:
- Lands identified by informal expressions of interest from the public; or,
- Bureau motion, or lands identified by the BLM.
The successful bidder must submit a properly executed 3000.002 lease bid form, which constitutes a legally binding lease offer. The bidder must also pay an administrative fee, the first year's advance rental ($3.00 per acre or fraction thereof), and not less than a $10-per-acre minimum bonus bid. The balance of the bonus bid must be paid within 10 working days from the last day of the auction.
EXPENSES ASSOCIATED WITH A LEASE
Bonds: Before an operator conducts any surface-disturbing activities related to drilling, a bond must be provided to the BLM to ensure compliance with all the lease terms, including environmental protection. Form 3000-004, Oil and Gas or Geothermal Lease Bond may be used for coverage of the principal on individual, statewide, or nationwide coverage with personal or surety bonds. The minimum required bond amount is $10,000 for an individual bond and will provide coverage for the principal on the single Federal lease. The minimum required bond amount is $25,000 for a statewide bond and will provide coverage for the principal on Federal leases in the state or states named on the bond form. A minimum of $25,000 for each state you name on the form is required. The minimum required bond amount is $150,000 for a nationwide bond and will provide coverage for the principal on Federal leases in the United States, except for the National Petroleum Reserve in Alaska. (Federal leases do not include Indian leases.) The BLM will require an increase in the bond amount whenever conditions warrant.
Bonding can be secured by using a corporate surety bond, or a personal bond accompanied by negotiable Treasury securities, a cashier’s check, a certified check, a certificate of deposit, or an irrevocable letter of credit.
When a new person or company becomes the operator on a well, that new person or company must notify the appropriate BLM Field Office of the change in operator. The new operator must specify to the BLM what bond will cover its operations.
Rents: Annual rental rates for a competitive lease is $3.00 per acre (or fraction thereof) in the first 2 years; $5.00 per acre for lease years 3 through 8; and $15.00 per acre each year thereafter. The first year’s rental payment is filed with a winning bid in the proper BLM office. Once a lease is issued, the second and all subsequent rental payments must be paid to the Department of the Office of Natural Resources Revenue (ONRR) on or before the lease anniversary date. If the rental is not received by the anniversary date each year, the lease will automatically terminate through operation of law. A lessee will not receive advance notice of imminent rental due and lease termination. It is the responsibility of the lessee to pay timely rentals.
Royalties: The ONRR collects a royalty on production for Federal onshore leases. The Federal onshore oil and gas rate is 16.67% for leases issued after August 16, 2022. However, there are a few exceptions, including different royalty rates on older leases, reduced royalty rates on certain oil leases with declining production, and increased royalty rates for reinstated leases.
Terms and conditions: A lessee, may explore and drill for, extract, remove, and dispose of oil and gas deposits, except helium, for the lands covered under the lease. Before conducting any surface-disturbing activities, the operator must obtain BLM approval. Drilling proposals are subject to the lease terms and stipulations that are attached to the lease and necessary mitigation measures that are consistent with the lease rights. Please see due diligence requirements in the lease instrument. The BLM may cancel the lease if the lessee fails to comply with lease terms.
Transfer of interest: Interest in a lease can be transferred by assignment of the record title interest or by transfer of the operating rights interest. The assignment or transfer must be submitted to the appropriate BLM office within 90 days from the date the transferor signs it and an administrative fee. Until the BLM approves the transfer, the U.S. Government does not recognize the rights of the transferee, and the transferor remains fully responsible for the lease. The BLM will not approve any assignment of record title for a separate zone, deposit, depth, formation, a specific well, or part of a legal subdivision, nor will the BLM approve any assignment of record title for less than 640 acres outside Alaska, or less than 2,560 acres within Alaska. However, the BLM may approve an assignment of record title for less than this acreage, if it is for the entire leasehold or the parties can demonstrate that approval will increase the chances of development.
For more information on transferring oil and gas leases view the handout: Information and Procedures - Transferring Oil and Gas Lease Interests.
Expiration: A lease will expire at the end of its primary term, which is usually 10 years. However, the BLM may extend the lease, or the lease may continue under its own terms, if:
Qualifying drilling operations are in progress; the lease contains a well capable of producing in paying quantities; or the lease is entitled to receive an allocation of production from an off-lease well.
Relinquishment: Lessee(s) may give up all or part of the lease by filing a written relinquishment with the appropriate BLM office. A relinquishment takes effect on the date it is filed. However, all wells and other work as may be required by the BLM must be performed so the lease is in proper condition for abandonment. The lease account must be in good standing with the ONRR.