1: Executive Summary
2: About Oil/Gas Leases
3: Oil & Gas Impacts
4: Bush Admin Rollbacks
5: The Spin on Drilling
6: Hotspot: Roan Plateau, CO
7: Hotspot: Otero Mesa, NM
8: Hotspot: Rocky Mtn Front, MT
9: Hotspot: Powder River Basin, WY
10: Hotspot: Book Cliffs, UT
11: Oil, Gas, Political Cash
12: EWG Recommendations
Atlas of Active Leases
VIEW STATE SUMMARIES
FIND A COMPANY
Search for a Lease Holder
About Oil and Gas Leases
Since 1982, the federal government has leased or offered for oil and gas drilling 229 million acres of public and private land in 12 western states -- an area larger than the combined size of Colorado, New Mexico and Arizona. The federal government offers land for oil and gas drilling through the sale of leases which typically last for 10 years or more. Among the rules that have helped clear the way for oil and gas development are provisions that generally allow drilling on land where the surface is owned by a private party but the oil and gas rights are owned by the federal government. Environmental measures can restrict drilling in sensitive locations but companies in many cases receive waivers from these protections. Following is a look at the basics of oil and gas leasing.
What are oil and gas?
Oil and gas are energy sources that began as the remains of plants and animals that lived millions of years ago. Over the centuries, these remains decayed and built up in thick layers. Exposure to heat and pressure transformed these layers into oil and natural gas.
Oil, a liquid that ranges in color from yellow to black, is used to make gasoline, jet fuel and other products. Gas, known as natural gas, is, in its natural form, an odorless, colorless substance that is widely used to heat homes, among other purposes. Companies add small amounts of a chemical called mercaptan to natural gas to provide the familiar "gas" smell that allows users to detect leaks.
According to the U.S. Department of Energy, Natural Gas provided nearly 23 percent of our energy in 2003 while oil provided nearly 40 percent of our power (DOE Natural Gas Summary 2004, DOE Oil Summary 2004, DOE Natural Gas Fundamentals 2004, EIA Energy Consumption by Fuel 2004).
What is an oil and gas lease?
Under federal law, any adult U.S. citizen may obtain and hold a lease to explore and drill for, extract, remove, and dispose of oil and gas deposits on federal land. Corporations organized under U.S. law and municipalities may also obtain and hold oil and gas leases (CFR Who May Lease Land? 2004).
The lease provides the right to use as much of the leased land as is necessary to develop oil and gas resources. The lessee and his or her operator cannot build a house on the land, farm the land, or remove minerals from the leased land other than oil and gas (CFR Lease Rights 2004, BLM Instructions 2004). However, in most states, if the surface of land is owned by another party and oil and gas companies lease the mineral rights from the federal government, the companies do not have to receive permission from the surface owner before beginning operations (OGAP 2004).
Most leases expire at the end of a 10-year "primary term" but may be extended if diligent drilling operations are in progress, or if other conditions are met. The term of a lease can continue as long as the lessee produces oil and gas in paying quantities (CFR Duration of Lease 2004).
Leasing of minerals that are privately owned differs from the leasing of federal minerals because a private mineral lease is a contract between two private parties. Thus, in a private lease, a mineral owner can create stringent stipulations regarding how development may occur, for example, where access roads are built and which damages will be compensated (OGAP 2004, Chapter 3).
How is land leased?
Determining which land is leased is an ongoing process that often begins with informal expressions of interest from the public usually oil and gas companies who ask that certain parcels of public property be leased. BLM also decides to lease some land for management reasons (CFR How BLM Offers Leases 2004).
Each BLM state office is required to hold lease sales at least quarterly if land is available. These sales are first conducted competitively through an oral bidding process. Prospective lessees must bid in person or send a representative. Competitive leases are issued for a primary term of 10 years (CFR How BLM Offers Leases 2004, BLM Instructions 2004).
If land does not receive bids at competitive auction, prospective lessees can obtain a lease on the land non-competitively by submitting a bid to the proper BLM office. Non-competitive leases are also issued for a primary term of 10 years (CFR Non-Competitive Bids 2004).
Can leases include environmental protections?
Yes. Public lands are available for oil and gas leasing only after they have been evaluated through the BLM's land use planning process. In areas where development of oil and gas resources would threaten other land uses, such as setting aside habitat for wildlife, BLM may attach protective measures to the leases that modify the terms of oil and gas operations or restrict where operations can occur. The Secretary of the Interior and federal officials who manage the surface of federal lands have the authority to deny a lease (BLM Instructions 2004, CFR Land Use Stipulations 2004).
In practice, however, recent reports from BLM field offices in Wyoming indicate that the BLM may often waive environmental protections at the request of gas and oil companies. The Pinedale Field Office in western Wyoming granted at least 251 exceptions to protections for wildlife between September 2002 and July 2003 while the Rawlins Field Office in southern Wyoming reported that since October 2003, it has granted 66 exceptions to protections for wildlife (BLM Pinedale Wildlife Exceptions 2003, BLM Pinedale Sage Grouse Exceptions 2003, BLM Pinedale Raptor Exceptions 2003, BLM Rawlins Exceptions 2004).
How much land can be leased?
About 570 million acres of federal land in the continental U.S. and Alaska are open for oil and gas leasing -- an area of land about the size of all 12 states included in this investigation: Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, South Dakota, Utah, Washington, and Wyoming. EWG estimates that about 301 million acres in the 12 western states considered in this investigation are open for oil and gas leasing. This estimate reflects the total area of federal public land in these 12 states less lands that are nearly always restricted from leasing and drilling regardless of administration policies or local land use plans National Parks, Wilderness, National Monuments, Forest Service Recreation Areas, Military Reservation, National Fish and Wildlife Refuges, and National Recreation Areas.
BLM has responsibility for leases on lands which includes BLM and national forest lands as well as private lands where the federal government has retained mineral rights, called "split estate" or "private surface" lands (BLM Instructions 2004).
A parcel of land in the continental U.S. offered under a competitive lease may not exceed 2,650 acres. The parcels must be as compact as possible (CFR Size of Competitive Leases 2004). A parcel of land in the continental U.S. offered under a non-competitive lease must generally be at least 640 acres and, in all cases, must be less than 10,240 acres (CFR Size of Non-Competitive Leases 2004).
A person or entity can take, hold, own or control a maximum of 246,080 acres of federal oil and gas leases in any one state at the same time. Federal rules do not count some acreage as part of a person or entity's total acreage, such as certain leases subject to operating, drilling or development contracts approved by the Secretary of the Interior (CFR Total Land Holdings 2004).
Violations of acreage limits
According to BLM records, Energy West Corp.'s holding of 287,363.5 acres under lease in Washington state violates federal provisions allowing a company to hold no more than 246,080 acres in a particular state (BLM LR2000 2004).
According to a recent report, BLM has notified its state offices that any company whose holdings exceed the state acreage limits will not be allowed to obtain new leases in that state until the company brings its holdings back within the acreage cap. The notice follows shortly after a recent Associated Press story which reported that since 1997, a half dozen companies have violated the state-by-state acreage limit. One of the violators was Tom Brown, Inc. which, at the time of its violation from 1997 to 2000, was headed by Donald Evans, now U.S. Secretary of Commerce. The AP reported that BLM had never exercised its legal right to cancel leases held by companies in excess of the state acreage limit and that BLM had never denied a company's request for an extension of time to comply (Pace 2004).
How much do leases cost?
On auction day or at a time specified by an authorized officer, winning bidders pay an administrative fee of $75 per lease, the first year's rent of $1.50 per acre, and at least $2 per acre of their "bonus bid." (The minimum bid is $2 per acre; the bonus bid is what bidders offer above the minimum.) Winning bidders pay the balance of the bonus bid to BLM within 10 working days of the auction.
In addition to the initial payment, lessees pay rental rates of $1.50 per acre for the first five years for all leases beginning after December 22, 1987. Rates are $2 per acre for any additional year. Other rates may apply for leases that began prior to December 22, 1987. Rates can reach $10 per acre or higher for leases that are terminated and subsequently reinstated.
Lessees generally do not pay rent on land for which they are paying royalties (CFR Leasing Fees 2004).
What happens after a company or individual wins a lease: Bonding
Before drilling can begin, the lessee, sublessee, or operator must post a bond of at least $10,000 to ensure compliance with the terms of the lease, including environmental protection. However, a lessee, sublessee or operator can post a bond of at least $25,000 to cover all leases and operations in a particular state and a bond of at least $150,000 to cover all leases and operations nationally (CFR Oil & Gas Bonding 2004).
In practice, these fees have fallen far short of actual cleanup costs. In 2001, state and federal managers in Wyoming reported that Emerald Restoration & Production, a Gilette-based company, went bankrupt, leaving only about $250,000 worth of bonds to cover the estimated $4 million bill for closing 120 wells. The company had posted a blanket bond of $25,000 to cover its wells on federal land, the others were located on state and private land. The Wyoming Oil and Gas Conservation Commission had required Emerald to pay additional bond money for the state and private wells but the total was still far short of the cost of cleanup (Bleizeffer 2001).
According to a 2001 report by four citizens groups, "BLM recognizes that all bonding amounts (both private and public surface) are dramatically low in contrast to costs of full reclamation. Recent Wyoming examples illustrate this point: operators posting $25,000.00 statewide bonds have left clean-up costs, for one well, of $37,000.00. In addition, BLM recognizes that it has approximately 90 orphan wells nationwide, with expected liability to the taxpayer at $1.7 million, yielding an average cost of reclamation (and just plugging and abandoning), per well, of approximately $19,000.00. BLM acknowledges that full reclamation of some orphaned natural oil and gas wells can cost up to $75,000.00. Accordingly, BLM recognizes that bonding amounts are far too low for federal oil and gas activities" (Protecting Wyoming 2001).
BLM Director, Kathleen Clarke, told a Wyoming newspaper more than two years ago that "there will be some increases" in bonds. And last year, the BLM announced that amounts for oil and gas bonds would increase. Under proposed rules, oil and gas companies would pay $20,000 for wells they drill on a particular lease and $75,000 for statewide bonds. But nationwide bonds would remain unchanged at $150,000. Thus far, these changes have not been implemented (Gillette News-Record 2002, Chakrabarty 2003).
Applying to Drill
In addition to bonding, a federal officer must approve an Application for a Permit to Drill (APD) before the lessee can begin oil and gas operations. The lessee must file the APD at least 30 days before operations begin. Among other things, the APD must include a surface use plan of operations which must provide plans for reclamation as well as containing and disposing of hazardous material.
Subsequently, a federal officer will post a description of the proposed operation for public inspection for a period of 30 days. Within five business days of the end of the 30-day period (or within 30 days of receipt for Indian lands), a federal officer will approve the APD, approve the APD with conditions, deny the APD with an explanation of the denial, or advise the applicant that final action will be delayed and provide an expected date for final action (CFR Application for a Permit to Drill 2004).
BLM is on pace to issue a record number of drilling permits this year. By June 25, the Bureau had issued 3,500 permits and is expected to reach 6,000 by the end of the fiscal year in September. Last year, BLM issued 4,000 permits. "It's unprecedented in the history of the BLM," BLM Geologist Richard Watson said of the pace of permitting at a natural gas conference in Denver (Shore 2004).
What production royalties are paid to the government by oil and gas lessees?
Lessees pay a royalty of 12.5 percent to the Department of the Interior's Minerals Management Service on the amount or value of the oil or gas removed or sold from each lease. Lessees must pay a minimum royalty at the end of each year beginning on or after a discovery of oil or gas in paying quantities (CFR Oil and Gas Royalty 2004).
Do operators have to abide by environmental protections?
Yes. Among other things, federal law provides that "the operator shall exercise due care and diligence to assure that leasehold operations do not result in undue damage to surface or subsurface resources or surface improvements."
Failure to abide by such protections can result in civil or criminal penalties. In addition, an authorized federal officer may enter the lease and perform, at the operator's expense, procedures that the operator has failed to perform. An authorized officer may also shut down oil and gas operations (CFR Environmental Obligations/Enforcement 2004).
In at least some cases, BLM has fallen short of its duty to enforce environmental standards. In 2001, New Mexico's acting BLM state director, Richard Whitley, testified at a Congressional hearing that an Inspection and Enforcement review of the Farmington, NM office "identified an inadequate number of personnel available to monitor oil and gas activities in the Farmington area." Whitley also testified that "Surface Protection Specialists were focusing their efforts on processing Applications for Permit to Drill (APD)" and indicated that these personnel were not concentrating on "high-priority environmental inspections." (Whitley 2001).
Can a lessee relinquish rights to a lease or lose such rights?
Yes. A lessee may relinquish a lease at any time by paying accrued rental fees and royalties, placing wells in a condition for suspension or abandonment as required by BLM, and by completing reclamation on the site after halting oil and gas operations. In general, a lessee will automatically lose rights to a lease if there is no well capable of producing oil or gas in paying quantities and the lessee fails to pay the annual rental fee on time (CFR Relinquishment/Termination 2004).
Leases expire at the end of their 10th year unless certain conditions (discussed above) are met.
- Bleizeffer, Dustin (Bleizeffer 2001). Well bonds not enough. The Casper Star Tribune. September 7, 2001.
- Bureau of Land Management (BLM LR2000). 2004. Correspondence from BLM to Environmental Working Group, July 19, 2004.
- Bureau of Land Management (BLM Leasing Instructions). 2004. General Oil and Gas Leasing Instructions. Accessed online May 17, 2004 at http://www.ut.blm.gov:80/MineralsAdjudication
- Bureau of Land Management Rawlins Field Office (BLM Rawlins Exceptions). 2003-2004. Wildlife, Greater Sage-grouse & Raptor Winter Range Exceptions to Date, October 1, 2003 to September 30, 2004. The report was last updated June 18, 2004.
- Bureau of Land Management Pinedale Field Office (BLM Pinedale Wildlife Exceptions). 2003. Wildlife Winter Range Exceptions 2002-2003. The report was last updated December 26, 2002.
- Bureau of Land Management Pinedale Field Office (BLM Pinedale Sage Grouse Exceptions). 2003. Sage Grouse Winter and Nesting Exceptions 2002-2003. The report was last updated August 1, 2003.
- Bureau of Land Management Pinedale Field Office (BLM Pinedale Raptor Exceptions 2003). 2003. Raptor Winter and Nesting Exceptions 2002-2003. The report was last updated August 1, 2003.
- Chakrabarty, Gargi. Fees held aganst future cleanup costs to double or triple. Rocky Mountain News. October 28, 2003.
- Code of Federal Regulations (CFR Who May Lease Land?). 2004. 43 CFR § 3102.1 (2004).
- Code of Federal Regulations (CFR Duration of Lease). 2004. 43 CFR §§ 3100.0-5, 3100.0-5, 3107.2-1 (2004).
- Code of Federal Regulations (CFR Lease Rights). 2004. 43 CF § 3101.1-2 (2004).
- Code of Federal Regulations (CFR How BLM Offers Leases). 2004. 43 CF § 3120.1-2, 3120.2-2, 3120.3-1, 3120.5-1 (2004).
- Code of Federal Regulations (CFR Size of Competitive Leases). 2004. 43 CF § 3120.2-3 (2004).
- Code of Federal Regulations (CFR Size of Non-Competitive Leases). 2004. 43 CF § 3110.3-3 (2004).
- Code of Federal Regulations (CFR Total Land Holdings 2004). 2004. 43 CF § 3101.2-1, 3101.2-3 (2004).
- Code of Federal Regulations (CFR Leasing Fees). 2004. 43 CFR § 3103.2-2, 3120.1-2, 3120.5-2 (2004).
- Code of Federal Regulations (CFR Oil and Gas Royalty). 2004. 43 CFR § 3103.3-1 (2004).
- Code of Federal Regulations (CFR Non-Competitive Bids). 2004. 43 CFR § 3110.1, 3110.3-1 (2004).
- Code of Federal Regulations (CFR Oil & Gas Bonding). 2004. 43 CFR § 3104.1-3104.8 (2004).
- Code of Federal Regulations (CFR Relinquishment/Termination). 2004. 43 CFR § 3108.1, 3108.2-1 (2004).
- Code of Federal Regulations (CFR Relinquishment/Termination). 2004. 43 CFR § 3101.7-1, 3101.7-2 (2004).
- Code of Federal Regulations (CFR Application for a Permit to Drill). 2004. 43 CFR § 3162.3-1 (2004).
- Code of Federal Regulations (CFR Environmental Obligations/Enforcement). 2004. 43 CFR § 3163.1, 3163.2, 3163.3 (2004).
- Energy Information Administration (EIA Consumption by Fuel). 2004. Table 1.3: Energy Consumption by Source. Accessed online July 26, 2004 at http://www.eia.doe.gov/fueloverview.html.
- Gillette News-Record (Gillette News-Record). 2002. BLM asked to ensure land is protected. April 25, 2002.
- Oil and Gas Accountability Project (OGAP). 2004. Oil and Gas at Your Doorr? A Landowner's Guide to Oil and Gas Development. Accessed online August 12, 2004 at http://www.ogap.org/.
- Pace, David (Pace). 2004. Government Tightens Enforcement of Oil Lease Acreage Limits. The Associated Press. August 3, 2004.
- Protecting Wyoming's People, Land, Water and Air: A Citizen's Proposal to Conserve Wyoming's Heritage in the Powder River Basin. 2001. Accessed online at http://www.wyomingoutdoorcouncil.org/programs
- Shore, Sandy (Shore). 2004. BLM on Pace to Set Record for Well Drilling Permits. Associated Press. July 28, 2004.
- Whitley, Richard, Acting State Director New Mexico State Office Bureau of Land Management (Whitley). 2001. Senate Energy and Natural Resources Committee Field Hearing; Bloomfield, New Mexico, May 31, 2001. "Inspection & Enforcement of Bureau of Land Management Oil & Gas Wells in the Farmington Area." Accessed online June 28, 2004 at http://www.blm.gov/nhp/news/legislative
- U.S. Department of Energy (Oil Summary). 2004. Petroleum (Oil) -- A Fossil Fuel. Accessed online July 26, 2004 at http://www.eia.doe.gov/kids/non-renewable/oil.html.
- U.S. Department of Energy (DOE Natural Gas Summary). 2004. Natural Gas -- A Fossil Fuel. Accessed online July 26, 2004 at http://www.eia.doe.gov/kids/non-renewable/naturalgas.html.
- U.S. Department of Energy (DOE Natural Gas Fundamentals). 2004. Natural Gas Fundamentals from Resource to Market. Accessed online July 26, 2004 at http://www.doe.gov/engine/content.do?BT_CODE=NATURALGAS.