CHAPTER 6 READJUSTMENT OF FEDERAL COAL LEASES

• Jurisdiction: United States

Federal Royalty Revolution--Coal
(Nov 1986)
CHAPTER 6
READJUSTMENT OF FEDERAL COAL LEASES
Marilyn S. Kite
Holland & Hart
Cheyenne, Wyoming

Principal Authorities:

Mineral Leasing Act, 30 U.S.C. § 181 et seq.; 43 C.F.R. § 3451 et. seq; 43 C.F.R. 3485 ; Rosebud Coal Sales Co. v. Andrus, 667 F.2d 949 (10th Cir. 1982). FMC v. Watt, 587 F. Supp. 1545, (D.C. Wyo.), appeal docketed, Nos. 84-2175, 84-2208 (10th Cir. Aug. 29, 1984); Coastal States Energy Co. v. Watt, 629 F. Supp. 9 (D. Utah 1985), appeal docketed, Coastal States Energy Co. v. Hodel, No. 86-1031 (10th Cir. Feb. 24, 1986); Gulf Oil Corp. v. Clark, 631 F. Supp. 29 (D.N.M. 1985).

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I. History of Coal Leasing

A. Mineral Leasing Act of 1920 — 41 Stat. 437; 30 U.S.C. 181 et seq.

1. The Act made leasing the exclusive means of developing coal from deposits owned by the United States.

2. The Act gave the Secretary of the Interior discretionary authority to issue leases, licenses and prospecting permits.

3. Leases issued by the Secretary of the Interior were for an indefinite term conditioned on diligent development and subject to reasonable readjustment every twenty years.

4. The Act authorized the Secretary to "waive, suspend or reduce" royalties if necessary to achieve maximum resource recovery. 30 U.S.C. § 209.

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5. Royalties were established on a cents per ton basis with a five cent minimum, and royalties usually ranged from five to twenty cents per ton.

II. Readjustment and Lease Terms

A. Indeterminent term leases provided for readjustment at the end of each twenty-year period succeeding the date of the lease. 30 U.S.C. § 207.

B. Leases prepared by Interior provided that the Government had the right to "reasonably readjust" royalties and other lease terms at the end of each succeeding twenty year term.

C. The leases were initially made subject to the Mineral Leasing Act as amended and any regulations effective at the date of issuance. Current leases are also subject to regulations "hereinafter adopted." In Gulf Oil Corp. and The Pittsburgh & Midway Coal Mining Co., 91 I.B.L.A. 93 (1986), the

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Board refused to consider a challenge to the propriety of making leases subject to future regulations because there was no showing of present harm.

D. Prior to 1976, Interior readjusted leases on a lease-by-lease basis, taking into consideration the particular circumstances of each lease. Department of the Interior New Release (March 17, 1979).

III. Readjustment Procedures; 43 C.F.R. 3451.

A. "Naked Notice." The BLM sends the lessee a brief notice that the lease will be readjusted at the end of the 20-year period. This notice is sent prior to expiration of the period, and failure to serve the initial notice waives the government's right to readjust. 43 C.F.R. 3451.1(c)(i).

B. BLM must transmit to the lessee the proposed readjusted terms within two years of the initial notice or waive readjustment. 43 C.F.R. 3451.2; Kaiser Steel Corp., 76 I.B.L.A. 387 (1983).

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C. The lessee then generally has 60 days to file objections to the proposed terms with the BLM. (Note: 30 days to object is required in some leases).

D. BLM then has an indeterminate amount of time to respond. The lessee cannot appeal the readjustment until the BLM issues its final decision. California Portland Cement Co., 33 I.B.L.A. 223 (1977). BLM is contemplating a rulemaking to make the Notice of Readjusted Terms and Conditions the final Department Decision for terms and conditions mandated by statute or regulation. The effect would be to cut off appeal of those Terms to BLM or to I.B.L.A. See Memorandum from Chief, Division of Solid Mineral Operations to Dep. Asst. Director for Solid Minerals (July 22, 1986).

IV. Effect on Royalties During Readjustment

A. The readjusted terms become effective 60 days after they are sent to the lessee by the BLM. 43 C.F.R. 3451.2(c).

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B. The effective date of the readjustment is not affected by any objections filed with the BLM.

C. The readjusted terms and conditions are effective during appeal unless the authorized officer provides otherwise. 43 C.F.R. 3451.2(e).

D. Upon filing an appeal, however, the obligation to pay royalties and rentals under the readjusted lease is suspended pending outcome of the "appeal." However, royalties accrue and become payable with interest if the...