General Oil and Gas Leasing Instructions
The BLM generally issues two types of leases for oil and gas exploration and development on lands owned or controlled by the Federal government -- competitive and noncompetitive.
Congress passed the Federal Onshore Oil and Gas Leasing Reform Act of 1987 requiring that all public lands available for oil and gas leasing be offered first by competitive leasing. The BLM may issue noncompetitive leases only after the agency has offered the lands competitively at an auction in which the lands do not receive a bid.
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 both competitive and noncompetitive leases for a 10-year period.
BLM State Offices conduct lease sales quarterly when parcels are 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 three sources:
- Lands identified by informal expressions of interest from the public;
- Lands included in offers filed for noncompetitive leases; or,
- Bureau motion, or lands identified by the BLM.
The successful bidder must submit a properly executed lease bid form, which constitutes a legally binding lease offer. The bidder must also pay an administrative fee, equal to the first year's advance rental ($1.50 per acre or fraction thereof), and not less than a $2-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.
- Noncompetitive Leases
The BLM issues noncompetitive leases only for parcels the agency previously offered competitively but which failed to receive a bid.
The lands in expired, terminated, relinquished, or canceled leases are not available for noncompetitive leasing until the BLM offers them competitively in a Sale Notice for an auction and failed to receive a bid. You may file a noncompetitive pre-sale offer on these lands if the prior lease for these lands has expired or terminated, or the lease holder has given up the lease, or the BLM has canceled the lease at least 1 year before you submit the pre-sale offer to the appropriate BLM State Office.
Following an oil and gas lease sale, you may submit an offer for a noncompetitive lease on any of the parcels that did not receive bids. These lands are available for 2 years, beginning the first business day following the last day of the auction, as specified in the Sale Notice. For noncompetitive leasing you must submit each offer on a separate lease offer form. If you submit an offer on the first business day following the auction through the last day of the same month, you must identify the lands you want by the parcel identification number used in the Sale Notice. Afterward, you must use legal land descriptions when you submit a noncompetitive lease offer. During this remaining time of the 2 years, you may submit offers for lands that are different than the parcel configurations offered at the auction.
You must submit your offers on a BLM-approved form and include payment of a administrative fee and the first year’s advance rental of $1.50 per acre. The BLM considers all noncompetitive lease offers filed on the first business day following the auction as having been filed simultaneously. The agency determines the priority among multiple offers for the same parcel by public drawings. If you submit an offer after the first business day of the auction, you will receive priority according to the time of filing. For example, the BLM gives priority to an offer filed at 10:15 a.m. over an offer filed at 10:16 a.m.
- Expenses Associated with a Lease
Bonds: Before you conduct any surface-disturbing activities related to drilling, you must provide the BLM a bond of at least $10,000 to ensure your compliance with all the lease terms, including environmental protection. If you are an operator on the lease, you may use the bond of another party, such as the lessee, if the surety and the bond holder agree. When a new person or company becomes the operator on a lease, that new person or company must notify the BLM of the change in operator. The new operator must specify to the BLM what bond will cover its operations.
You can provide bonding by using a surety bond, 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.
The BLM may require an increase in the bond amount whenever conditions warrant.
Rents: 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. The first year’s rental payment is filed with your offer in the proper BLM office. Once you obtain your lease, you must pay the second and all subsequent rental payments to the Department of the Interior’s Office of Natural Resources Revenue (ONRR) on or before the lease anniversary date. If your rental is not received by the anniversary date each year, your lease will automatically terminate by regulation. You 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 both competitive and noncompetitive leases. In general, Federal Onshore Oil and Gas Rates are not less than 12.5%. However, there are a few exceptions, including a sliding scale on older leases, reduced royalty rates on certain oil leases with declining production, and reinstated leases.
- Lease Terms
Terms and conditions: As lessee, you may explore and drill for, extract, remove, and dispose of oil and gas deposits, except helium, that you may find on your lease. Before conducting any surface-disturbing activities, you 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 your lease instrument. The BLM may cancel your lease if you fail to comply with lease terms.
Transfer of interest: You may transfer your interest in a lease by assignment of the record title interest or by transfer of the operating rights interest. You must submit the transfer on an approved form 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, 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: Your lease will expire at the end of its primary term, which is usually 10 years. However, the BLM may extend your lease, or your 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.
You may give up all or part of your lease by filing a written relinquishment with the appropriate BLM office. A relinquishment takes effect on the date you file it. However, you must plug any abandoned wells and perform other work as may be required by the BLM so the lease is in proper condition for abandonment. You must also bring the lease account into good standing.
The BLM may cancel a non-producing lease if you fail to comply with lease terms.
If your lease does not have a producible well, or a producible well attributed to it, the lease will automatically terminate if you do not pay annual rental on time.