Chapter 6A The Future of Oil and Gas Leasing in the Second Century of the Mineral Leasing Act

• Jurisdiction: United States

Chapter 6A The Future of Oil and Gas Leasing in the Second Century of the Mineral Leasing Act
Mark S. Barron Baker & Hostetler LLP Denver, CO

MARK S. BARRON is the head of energy practice group for BakerHostetler's Denver office. Mark is a Chambers Tier 1-ranked energy lawyer who has guided some of the country's largest producers of oil and gas through high-profile litigation, establishing himself as a "go to" counselor for energy companies and trade associations developing advocacy responses to regulatory initiatives. Mark routinely assists clients to meet their day-to-day operational objectives by interacting with government decision makers, developing strategic policy initiatives, crafting optimal business agreements, and litigating disputes. A prolific author and speaker on topics affecting energy producers, Mark has testified before Congress and been featured or quoted in dozens of industry and mainstream media outlets on topics related to energy policy, hydraulic fracturing, and commercial development on public lands.

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The year 2020 marked a century since Congress passed the Mineral Leasing Act "[t]o promote the mining of coal, phosphate, oil, oil shale, and sodium on the public domain,"¹ creating the framework for the modern system of oil and gas development on federal lands. But while the statute governing this development has remained largely unchanged over the last 100+ years, revolutions in extraction technology, market economics, environmental awareness, and climate science have had dramatic impacts on how the law is understood, implemented, and in some cases, politically weaponized. In today's courtrooms and policy corridors, the scope of development rights under the Mineral Leasing Act and the federal government's power to limit or curtail those rights is at the heart of some of the most controversial and vigorously disputed debates. Opponents of oil and gas production view the Mineral Leasing Act as a sword that can be used to fight for conservation and transform energy policy. Proponents see the Act as shield that protects operators' development rights and drives economic and national security initiatives. As this paper attempts to explain, neither side is entirely wrong.

Determining the best uses for the federal government's lands and how the nation's natural resources wealth should be capitalized and potentially disposed of has ignited public debate, inspired Congressional action, and defined executive administrations since well before the Mineral Leasing Act was enacted. But in the advent of the Mineral Leasing Act's second century, these questions are more complex and the debate more vigorous than ever before. Over the last two

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decades, American energy policy has ridden a pendulum, swinging to and fro as successive administrations of both parties attempted to unwind their predecessor's policy choices and implement an energy agenda more consistent with each administration's values. Whether any equilibrium can be reached remains an open question.

It is possible, however, that the dispute may be coming to a head. After four years of the Trump Administration's efforts to expand federal oil and gas leasing and production, the Biden Administration has taken steps to limit (and potentially eliminate) leasing and dramatically curtail production, leading to a proliferation of lawsuits the resolution of which is likely to define the Mineral Leasing Act's role in the twenty-first century. Unpacking these disputes over the future of federal oil and gas leasing program reflects the tension at the heart of contemporary discussions about the role of oil and gas in energy and environmental policy. Production and consumption of these fuels produces greenhouse gas emissions that impact global climate and environmental values, as well as human health. But oil and gas are also super-fuels, providing reliable, scalable, and inexpensive energy that enhances the lives of billions of global citizens and enriches the public and private coffers alike. Not surprising, managing a leasing program that accounts for all these qualities and characteristics is at best, extremely difficult, and at worst, virtually impossible.

I. EFFORTS TO PROMOTE MINERAL DEVELOPMENT.

Though Europeans - and eventually Americans - had sought mineral wealth throughout North America since at least the times of the conquistadors, there were no well-developed mining codes, no federal regulations, and no local government when prospectors from around the world began to advance into the expanding American west during the nineteenth century. When that advancement became a surge after the discovery of California gold and the ratification of the Treaty of Guadalupe Hidalgo in 1848, the miners themselves filled this vacuum. "Having to do something to avoid and settle disputes, and to provide guides for the location, development and

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holding of mining claims, miners in common areas adopted codes and mining regulations in which the fundamental principle was that the miner who discovered auriferous ground was entitled to hold and exploit it so long as he actively worked his claim."² From 1848 to 1866, state courts enforced and state legislatures sanctioned these regulations and customs of miners, which "constituted the law governing property in mines . . . on the public mineral lands."³

"[I]n 1866, Congress for the first time expressly opened the mineral lands of the public domain to exploration and occupation by miners."⁴ But the Act of July 26, 1866 - oft referred to as the Mining Law of 1866 - did not abandon the traditional miners' customs of discovery, location, and title through development. To the contrary, the statute declared "the mineral lands of the public domain . . . to be free and open to exploration and occupation . . . subject to such regulations as may be prescribed by law, and subject also to the local customs or rules of miners in the several mining districts, so far as the same may not be in conflict with the laws of the United States."⁵ Consistent with that approach, the 1866 Mining Law authorized the issuance of land patents to miners who had located and delineated a valuable mineral location and spent at least $1,000 in labor and improvements to develop that claim.⁶ The incentive of a possible patent promoted the Congressional purpose to "encourage the development of [the country's] mineral

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resources."⁷ "The miners' custom, that the finder of valuable minerals on government land is entitled to exclusive possession of the land for purposes of mining and to all the minerals he extracts, has been a powerful engine driving exploration and extraction of valuable minerals, and has been the law of the United States since 1866."⁸

If the Mining Law of 1866 represents the "skeletal form" of the legal framework for mineral development on federal lands,⁹ it was Congress' revision of that law in 1872 that put the meat on the bones. Still on the books today, the Mining Law of 1872 encouraged individuals "to prospect, explore and develop the mineral resources of the public domain through an assurance of ultimate private ownership of the minerals and the lands so developed."¹⁰ Upon location of a mining claim, a prospector obtained "the exclusive right of possession and enjoyment of all the surface included within the lines of their location."¹¹ Rather than the $1,000 in labor and improvement required for a patent under the 1866 law, the Mining Law of 1872 required only that "not less than $100 worth of labor shall be performed or improvements made during each year"

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before a patent could be issued.¹² It has been opined that the Mining Law of 1872 "contributed more to the settlement of the Rocky Mountain West and of the Pacific West than all the other statutes and and policies of the [federal] Government affecting that country combined."¹³

Twenty-five years later, in 1897, Congress passed the Petroleum Act,¹⁴ expressly applying the Mining Law's patent system to oil and gas deposits. The Petroleum Act provided that "any person authorized to enter lands under the mining laws of the United States may enter and obtain patent to lands containing petroleum or other mineral oils, and chiefly valuable therefor, under the provisions of the laws relating to placer mining claims."¹⁵ Like other claims under the mining laws, oil and gas claims could be located under the mining laws and then patented upon the actual discovery of petroleum within the limits of the claim.¹⁶ And just as with traditional mining claims, petroleum was required to exist "in such quantities as to justify expenditure of money for the development of the mine and the extraction of the mineral."¹⁷ Courts interpreting the Petroleum

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Act emphasized that "mere surface indications of the existence of oil" were insufficient to meet that standard,¹⁸ observing that "[v]aluable oil is found by drilling or boring into the interior of the earth, and either flows or is pumped to the surface; and until some body or vein has been discovered from which the oil can be brought to the surface, it cannot be considered of sufficient importance to warrant a location under the mineral laws."¹⁹

II. THE NEED FOR AN OIL AND GAS ACT.

Given the minimal barriers to entry and nominal costs associated with prospecting for oil and gas under the Petroleum Act, "many persons availed themselves of the provisions of the statute."²⁰ And because there were no regulations governing waste or conservation in the early twentieth century, the rule of capture demanded overproduction on federal lands. Under the traditional mining laws, if the locator did not drill for oil he would lose his land by failure to discover oil and if he did not drain all the oil he could once a discovery was made, he was liable to have his neighbor drain it from him (since the oil reservoir beneath the ground knew no boundaries corresponding to the surface ownership or control). Equally critical, the more wells in a...