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garding disposal of mineral and vegetative materials. It also specifically removed the so-called "common variety" minerals from location under the 1872 Mining Law by stating that deposits of these minerals shall no longer be deemed valuable within the meaning of that law.

Substantial confusion has arisen regarding the precise meaning and coverage of the term "common varieties". The 1955 act excepted from that category "deposits of such materials which are valuable because the deposit has some property giving it distinct and special value...” The Department of the Interior by regulation has defined common varieties as mineral deposits valuable for use in trade, manufacture, the sciences, or the mechanical arts, which do not possess a distinct and special economic value for such use over and above the normal uses of the general run of such deposits. This includes building stone, sand and gravel, and cinders used for road building purposes. The regulations also provide that if the particular deposit of a widely occurring mineral has distinct and special properties making it commercially valuable for use in a manufacturing, industrial, or processing operation, it is not a common variety. Thus, for example, limestone suitable for use in the production of cement is deemed not to be a common variety mineral.

III. OIL AND GAS AND THE LEASING SYSTEM

BACKGROUND

Although the 1872 Mining Law made no specific provision for disposition of lands containing oil and gas, it was generally considered to be applicable until the Secretary of the Interior ruled to the contrary in 1896. Congress then passed the Oil Placer Act of 1897 which specifically provided that the petroleum lands could be entered and patented under the placer laws. However, this system was soon found to be unsuitable for oil and gas development and subject to abuse. As a result, beginning in 1909 substantial portions of the public lands thought to be valuable for petroleum were withdrawn from mineral entry and remained withdrawn until passage of the Mineral Leasing Act in 1920. The sections of the 1920 Act pertaining to oil and gas established a system of prospecting permits which gave the permittee the exclusive right to explore a 2,560 acre tract for a period of 2 years provided that drilling commenced within 6 months and that at least 2,000 feet of drilling in aggregate was completed within 2 years unless production was achieved with less drilling. Upon discovery of oil or gas the permittee was entitled to a 20-year lease covering one-fourth of the land. Annual rentals were set at $1.00 per acre and the royalty at 5% of production. A preference right lease was available for the remaining lands included in the prospecting permit but at a royalty rate of not less than 12%. Lands overlying known geologic structures containing oil and gas were to be available on a competitive bid basis in leases not to exceed 640 acres, Royalties were to be not less than 1212%. The annual rental was $1 per acre. The lease term was 20 years with a right to renewal for 10 additional years. No more than 3 oil and gas leases were to be held in any one state, and no more than one lease was permitted for lands overlying the geologic structure of a producing oil and gas field.

The provisions of the 1920 Leasing Act pertaining to oil and gas have been substantially amended over the years. The limitation on the number of leases held per state was dropped in favor of total acreage limitations per state. Because of highly wasteful over-production of oil and gas during the 1920's states began to regulate production. In 1931 the Mineral Leasing Act was amended to permit Federal oil and gas leases to be unitized as part of a cooperative plan for development. In 1935 the system of exploration permits was abolished and in its place was substituted a lease to the first qualified applicant. The Acquired Lands Leasing Act of 1947 extended this system for oil and gas to the public lands acquired by the United States which had not been considered to be covered by the 1920 Act.

HOW THE LEASING SYSTEM WORKS

Any qualified person may make an offer to lease Federal lands for oil and gas. To be properly qualified the person must be 21, a U.S.

citizen, or an association or domestic (U.S.) Corporation. If more than 10% of the outstanding stock of a domestic corporation is held by persons who are not U.S. citizens, such non-citizen shareholders: must be citizens of a foreign country which allows U.S. citizens comparable privileges.

To determine what form the offer should take the interested person must determine if the lands are subject to leasing under the 1920 Act, the Acquired Lands Leasing Act of 1947, the Right-of-Way Leasing Act of 1930, or by other authority. He must further determine if the land is presently available-that is, not withdrawn from mineral leasing and not subject to an existing oil and gas lease. In order to obtain a lease without bidding for it competitively it must not be within any known geologic structure of a producing oil and gas field.

A proper offer for a noncompetitive lease includes the following requirements among others:

1. offers to lease must include at least 640 acres of available land but not more than 2,560 acres ;

2. all lands included in the offer must be within a six-mile square

area;

3. if the lands involved have been surveyed, they must be described by legal subdivision, section, township, and range; and

4. pertinent information regarding citizenship and other leased acreage held must be submitted.

COMPETITIVE BIDDING

If the land is within a known geologic structure of a producing oil and gas field, it must be leased by competitive bidding. The Branch of Mineral Classification of the U.S. Geologic Survey has defined a known geologic structure as the trap, whether structural or stratigraphic, in which an accumulation of oil or gas has been discovered by drilling and determined to be productive, the limits of which include all acreage which is presumably productive. Such structures need not be formally defined so long as the land is known to contain oil or gas. Competitive bidding may be initiated by private request, by the U.S. Geological Survey, or by the Bureau of Land Management. The tracts offered are described and designated by the government. Notice of the bidding is published together with the terms and conditions of the sale. The bidder qualification for competitive leases are the same as those for noncompetitive leases. Along with his bid the bidder must submit a deposit equaling one-fifth of his bid. Bidding is conducted on the basis of the so-called "bonus". Rentals, royalties, and other terms and conditions of the lease are fixed. By regulation the bids are sealed. The highest cash bonus offer gets the lease. Before the lease is actually issued the bidder must submit the balance of the bonus bid and the first year's rentals, and file the required bond.

LEASE TERMS

The principal lease terms are the following:

1. Primary term.-For a noncompetitive lease, 10 years; for a competitive lease, 5 years. If, at the end of the primary term, "actual drilling operations" are being "diligently prosecuted" the lease may be extended for 2 years and as long thereafter as production is obtained.

2. Extended term.-If, at the end of the primary term, production is obtained in paying quantities, the lease is automatically extended for as long thereafter as oil or gas continues to be produced in paying quantities.

3. Rentals. Not less than 50 cents per acre per year. By regulation the Secretary requires rentals for noncompetitive leases of 50 cents per acre but increasing to $2.00 per acre for lands subsequently coming within the limits of a known geologic structure of a producing oil or gas field. The rental for competitive leases is set at $2.00 per acre per year. After the discovery of oil or gas in paying quantities a minimum royalty of $1.00 per acre must be paid but such payment is in lieu of rental.

4. Royalties. The royalty under a noncompetitive lease is fixed at 122% of the amount or value of the production of oil or gas removed or sold from the lease lands or $1.00 per acre, per year, whatever is larger; the royalty under a competitive lease must be not less than 1212% and must be fixed by the terms of the lease. At present a sliding scale royalty schedule is being applied to competitive leases under which wells producing not over 50 barrel per day pay a 121% royalty with the royalty rate gradually increasing with production to a maximum of 25% for wells producing over 400 barrels per day. The royalty may be paid either in kind or in value at the election of the Secretary of the Interior. Whenever oil or gas is produced in paying quantities the requirement to pay royalties supercedes the rental requirement.

UTILIZATION AND COMMUNITIZATION

The holders of Federal oil and gas leases are authorized to join in a unitization plan for development or operation of an oil or gas pool, field, or like area, if the Secretary of the Interior determines that such unitization is necessary or advisable for conserving the oil or gas resources. A unitization plan is an agreement between all or most of the lessees and royalty owners in the field that all production from the area subject to agreement will be allocated among them on an agreed basis, regardless of the location of the producing wells within the area subject to the agreement. Pursuant to statutory authorization the Secretary has added a provision to the present oil and gas lease form requiring the lessee, upon demand, to join into an approved unit plan. Provision is also made under the 1920 Act whereby leases may be pooled with other lands under a communitization or drilling agreement if the leased lands are too small to be developed and operated under established well-spacing requirements and the Secretary of the Interior determines that such pooling is in the public interest.

LEASE TERMINATION

A lease will terminate according to its terms upon the expiration of the primary term and all extensions thereof. If the rental for a nonproducing lease is not paid in full and on time, the lease will automatically terminate by operation of law. Under the leasing act, leases may be cancelled by court proceedings, or by administration proceedings on lands not known to contain valuable deposits of oil or gas if the lessee has failed to comply with lease provisions.

THE SIMULTANEOUS FILING SYSTEM

The requirement that noncompetitive leases be issued to the "first qualified applicant" has necessitated the development of a system for handling situations in which either this determination is unclear or it results in undesirable confusion. This problem was especially acute in the situation where leases were about to terminate or be relinquished. A "mad scramble" often resulted from competing attempts to be the first applicant for the lands. In order to handle this problem, the Department of the Interior instituted a procedure known as the simultaneous filing system.

In the case of lands for which leases have terminated or otherwise expired, descriptions are posted in all Bureau of Land Management land offices. Lease offers for such lands are accepted from the day of posting until 10:00 a.m. on the fifth working day thereafter. If more than one offer is received to lease the same acreage, such offers are considered to be filed simultaneously and the priorities are determined by a lottery drawing.

ACREAGE LIMITATIONS

As part of the anti-monopoly effort in the creation of the 1920 Leasing Act Congress limited the number of oil and gas leases which could be held by any person to three per state. In 1926 the lease restriction was replaced by an acreage restriction. This acreage limitation has been expanded or liberalized three times since then. At present no person can hold, control, have interests in, or offers for oil and gas leases covering more than 246,080 acres in any one state. Of this total, no more than 200,000 acres may be held under option. There is a special exception for Alaska under which the state is divided into northern and southern leasing districts with an acreage limitation of 300,000 acres in each district. In each case no more than 200,000 acres may be held under option.

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