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Critical Concepts for Federal Coal Leasing

Are there any unique concepts, terms, or phrases that I should be aware of that would help me to understand the federal coal leasing system?
Yes, several terms or concepts should be brought to your attention. Some specific terms and their meanings are:

  • Fair Market Value (FMV) - BLM is required by statute to receive FMV for use of the public's resources. Prior to a lease sale, BLM prepares an estimate of the FMV of the coal lease. The estimate is prepared in accordance with standard appraisal methods and is strictly confidential. This term is defined as the amount of cash, or on terms reasonably equivalent to cash, for which in all probability the property would be sold by a knowledgeable owner who is willing, but not obligated, to sell to a knowledgeable purchaser who desires, but is not obligated, to buy. Fair market value is the sum of future royalties and a bonus paid at the time of lease issuance. As royalty rates are fixed in terms of the lease, success in a competitive lease sale is contingent on a bonus bid. BLM will accept the highest bid submitted at a competitive lease sale that meets or exceeds BLM's estimate of fair market value.

  • Maximum Economic Recovery (MER) - within the existing or reasonably prospective mining capabilities of the operator/lessee, and under the supervision and authorization of BLM, the operator/lessee will extract all profitable portions of the coal reserve. MER is attained when the operator/lessee has mined any portion of a coal reserve where actual revenues from the sale of coal produced will meet or exceed the actual direct costs of mining the coal reserve. Profitability can be determined on an incremental basis. Maximum economic recovery determinations can consider, but are not limited to, commercially available and economically feasible equipment and technology; coal quality, quantity, and marketability; safety, exploration, operating, processing, and transportation costs; and compliance with applicable laws and regulations. The requirement of MER does not restrict the authority of the BLM to ensure the conservation of coal reserves and other resources and to prevent the wasting of coal.

  • Commercial Quantities - defined as being equal to the production of 1 percent of the recoverable coal reserve.

  • Diligent Development - a statutory requirement of the lessee is that commercial quantities of coal must be produced within ten years after lease issuance. Failure to met this requirement results in termination of the lease.

  • Continued Operations - after a lease has met the diligent development requirements, production of commercial quantities of coal each year will be required. Annual commercial quantity requirements can be met by production of coal, payment of an advance royalty in lieu of coal production or a combination of both.

Last updated: 06-16-2008