CHAPTER 4 TERMS AND CONDITIONS OF FEDERAL MINING LEASES
| Jurisdiction | United States |
(Nov 1971)
TERMS AND CONDITIONS OF FEDERAL MINING LEASES
INTRODUCTION
This paper is confined to a study of the terms of leases for minerals under the Mineral Leasing Act of 1920,1 except oil and gas, and hardrock mineral leases issued for certain acquired lands.2 There are other federal mineral leases, such as those issued pursuant to special leasing acts,3 Atomic Energy Commission Leases,4 the Materials Act of 1947,5 and others which could and should be reviewed, but which have not been in this paper because of time limitations. The Mineral Leasing Act for Acquired Lands6 provides that leases of minerals normally subject to disposition under the Mineral Leasing Act of 1920 are to be issued under the same general conditions as are contained in the 1920 Act.
The intent of the writer has been to summarize selected terms of federal mineral leases, to discuss various practices and procedures that exist in connection with lease terms, and to review certain problem areas. No discussion is made of environmental protection provisions, which are to be discussed extensively in later presentations.
A duplicate copy of the Bureau of Land Management lease form for sodium is attached as an appendix for reference. It is suggested that the lease form be examined to gain familiarity with other standard lease terms that are not discussed herein.
The reference to the terms of federal mineral leases is somewhat misleading, in that the terms must be read together with statutes and regulations which also govern the rights of the lessee. In addition, there is a separate body of law comprised of Interior Department decisions, Solicitors' opinions, and judicial decisions that also bears on the meaning of the lease terms. Surprisingly, there are comparatively few court or departmental adjudications involving the terms of federal mineral leases. This can be interpreted as an indication that the system is working so smoothly that disputes have not arisen, or it also could mean
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that the bargaining position of the lessor, the Government, is so strong that it is futile to press a point too strongly. Probably, the explanation is a combination of both.
It is difficult to ascertain how the terms of federal mineral leases are being interpreted and implemented without consulting those who are administering the leases in behalf of the Government, and those are are operating leased properties. Accordingly, the writer has consulted informally with employees of the Bureau of Land Management, the U.S. Geological Survey, and private companies who are involved in supervising or conducting operations on leased properties. Because these conversations have been informal, no attempt has been made to document specific parties and occasions, and the writer bears responsibility for undocumented statements.
A. LEASE FORMS
The regulations state that a federal mineral lease shall be on a form approved by the director of the Bureau of Land Management.7 This indicates that a standard and formally adopted form is to be used for all leases. If the lease is issued upon competitive bidding, the form would have to follow that issued with the notice of sale.
Standard lease forms have been prepared for sodium,8 potassium,9 phosphate,10 coal,11 sulphur,12 and for hardrock minerals on acquired lands.13
The regulations provide that the form for an asphalt lease will be substantially the same as that set forth in Volume 47 of Land Decisions, at pages 426-29.14 That lease form was issued pursuant to the adoption of oil shale regulations which were approved on 11 March 1920. It is to be used for leases of bituminous sands, in addition to oil shale and asphalt.
The terms of recent bituminous sand leases are different in many ways from the prescribed standard form. For example, the minimum investment requirement is omitted altogether, the royalty provision is much different, and a restriction on overriding royalties is imposed.15 In addition, an entirely new oil shale lease form has been prepared and will undoubtedly be utilized when and if oil shale leases are issued.16
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Because the new terms being utilized for leases of the oil-bearing rocks vary so substantially from those prescribed, it would seem advisable to revoke the old form and adopt a standard document similar to those now in use for other Leasing Act minerals.
B. BONDS
The lease terms obligate the lessee to "maintain the bond furnished upon the issuance of this lease...and to increase the amount of or furnish such other bond as may be required."17
The amount of this "compliance" bond is established before the lease is issued by the authorized officer of the Bureau of Land Management after consultation with the Regional Mining Supervisor of the Geological Survey, (hereinafter referred to as the "regional mining supervisor"). The amounts will vary according to the type of mining that will be conducted, the surface area to be affected, and the amount of reclamation that will be required. The amount must not be less than $5,000 for potassium, sodium, phosphate, and sulphur leases; not less than $1,000 for coal leases; and not less than $500 for hardrock mineral leases.18 Because of the increasing surface restoration requirements, the bond amounts have been increasing during recent years and are generally set between $5,000 and $10,000. The amount can be increased while the lease is in effect.
A lease bond may be either a corporate surety bond or a personal bond. The corporate surety must hold a certificate of authority from the Secretary of the Treasury under the Act of July 30, 1947.19 A personal bond requires the deposit of satisfactory securities together with a power of attorney.
The lessee may avoid the requirement for individual lease bonds by filing $75,000 nationwide bonds for full nationwide coverage of all leases and permits issued for coal, potassium, sodium, or phosphate, respectively. A similar bond can be filed for leases acquired pursuant to the Mineral Leasing Act for Acquired Lands.20
Statewide bonds in the amount of $25,000 can be furnished for leases of coal, potassium, sodium, or phosphate, respectively.
If an operator is engaged in the mining of more than one of the minerals, he can file a collective bond in an
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amount equivalent to that which would be required if separate bonds were obtained.21
Since many leases are issued for an indefinite period, but are subject to readjustment of terms at periodic intervals, consent of the surety to the readjusted terms is obtained in order to extend coverage of the bond beyond those originally in the lease.22 A new bond must be submitted prior to the issuance of a renewal lease.23
Additional bonds may be required in connection with surface protection requirements. If the lease is on Forest Service ground and extensive restoration is required, a special bond may be required to be filed with the Forest Service.24 A stipulation inserted by the BLM binds the lessee to provide an additional bond, if the lessor determines that the basic compliance bond is inadequate, to guarantee payment of damages to a reclamation homestead entryman, to a reclamation project or water supply thereof, and to certain nonmineral applicants.25
A bond may also be required to guarantee payment of damages to a stock-raising homestead patentee for injury to his crops and agricultural improvements.26
A claim will be made upon the surety for damages incurred by the Government because of a default of the lessee. If the surety makes a payment to the Government, the face amount of the bond and the surety's liability is reduced by the amount of such payment.27 A new bond must be acquired thereafter in the full amount to avoid cancellation of all leases covered by the bond.28
C. ACREAGE LIMITATIONS29
1. General Limitations.30
Under the Mineral Leasing Act of 1920, as a general rule, a person, association or corporation may not hold in any one state more than 46,080 acres under coal lease or permit, 5,120 acres under sodium lease or permit, or 7,680 acres under asphalt or bituminous sand leases. No more than 20,480 acres can be held under phosphate leases or permits in the United States. No more than three sulphur permits or leases can be held in any one state during the life of such leases, and no lease or permit can exceed 640 acres. No person, association, or corporation may hold at any one time more than 51,200 acres under potassium permits,
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and potassium leases are limited to an aggregate of 25,600 acres in any one mining unit. Oil shale leases must not exceed 5,120 acres, and a person, association, or corporation may not hold more than one lease.31
The same acreage limitations apply to leases issued under the Acquired Lands Act, but acreage held under the two Acts is considered separately.32
Both direct and indirect holdings are included in computing acreage holdings. A person holding indirectly as a member of an association or corporation will be charged with his proportionate part of the corporation's or association's accountable acreage unless he holds less than 10 percent of the stock or other instruments of ownership or control.33 A party owning an undivided interest is chargeable with his proportionate part of total lease and permit acreage. Acreage included in applications is considered. An assignee remains chargeable with acreage pending approval of an assignment. Acreage held, owned or controlled in common by two or more parties may not exceed in the aggregate an amount equivalent to the maximum number of acres permitted for one lessee or permittee.34 If a contract is entered into for the development and operation of leased land, both parties are charged with their proportionate interests in the total acreage.
The chargeability of options is discussed specifically in reference to oil and gas leases,35 but the statutes and regulations...
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