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Federal Oil & Gas Leases

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Today’s Presenters

Melissa Munson The Woodlands, TX

Rick Steeno The Woodlands, TX

Federal Oil & Gas Leases

Big Picture • 46,183 leases • 34,592,450 acres leased • 1,157 new leases in ‘14 • 1,197,852 acres leased in ‘14 • 23,657 producing leases • 12,690,806 producing acres • 3,769 APDs approved • 2,544 wells spud

Basic “Need to Knows”

• Bureau of Land Management (“BLM”) • Office Of Natural Resources Revenue

(“ONRR”) • Resource Management Plan (“RMP”) • Environmental Impact Statement

(“EIS”)/Environmental Assessment (“EA”)

Quick History

• Mining Law of 1872 • Mineral Lands Leasing Act of 1920 • Minerals Leasing Act for Acquired Lands

of 1947 • Federal Onshore Oil and Gas Leasing

Reform Act of 1987 • Oil and Gas Leasing Reform, 2010

Resources • BLM RULES

– http://www.ecfr.gov/cgi-bin/text-idx?SID=58f2e664dca34f39fde42822cc24eb2f&tpl=/ecfrbrowse/Title43/43cfrv2_02.tpl#0

– BLM FEES are at 43 CFR §3000.12 • BLM FORMS

• http://www.blm.gov/noc/st/en/business/eForms/og.html • BLM ORG. CHART

– http://www.blm.gov/style/medialib/blm/wo/Business_and_Fiscal_Resources.Par.33189.File.dat/blm_org_chart.pdf

• BLM OFFICES – http://www.blm.gov/wo/st/en/info/directory.html

Choosing The Land

• 3100.0-3(a) Public domain lands • 3100.0-3(b) Acquired lands • 3101.2 Chargeability

The Leasing Process

Competitive Leasing 43 CFR 3120

• 3120.1-1 Lands available for competitive leasing

• 3120.3 Nominations • 3120.4 Notice of competitive lease sale • 3120.5 Competitive sale and auction

The Leasing Process

Non-Competitive Leasing 43 CFR 3110

• 3110.1-1 Lands available for non- competitive leasing

• 3110.2 Priority • 3110.4 Requirements for offer • 3110.5 Description of lands

Lease Terms and Conditions Fees, Rentals and Royalties • 3103.1 Payments • 3103.2 Rentals • 3103.3 Royalties • 3103.4-1 Royalty reductions Term • 3110.3-1 Lease duration (non-competitive) • 3120.2-1 Lease duration (competitive)

Continuation and Extension • 3107.1 Extension by drilling • 3107.2 Production • 3107.3 Extension for terms of unit plan • 3107.4 Extension by elimination • 3107.5 Extension if segregated by

assignment

Lease Terms and Conditions

Relinquishment, Termination, Cancellation • 3108.1 Relinquishment • 3108.2 Termination by operation of law • 3108.3 Cancellation

Lease Terms and Conditions

Reinstated Lease Terms

Reinstatement 3108.2-2 Class I Reinstatements 3108.2-3 Class II Reinstatements 3103.2-2 Rentals for reinstated leases 3103.3-1 Royalty for reinstated leases 3107.6 Extension of reinstated leases

Assignability

Record title ownership v. operating rights • 3106.4-1 Transfers of record title and

operating rights • 3106.4-2 Transfers of other interests • 3106.8-2 Change of name • 3106.8-3 Corporate merger

• 3181 Application for Designation • 3186 Model Forms

– Unit Agreement (UA) – Unit Operating Agreement (UOA) o Form 1- Undivided Interest o Form 2- Divided Interest

• Unit Contraction • Unitization resources-

http://www.blm.gov/mt/st/en/prog/energy/oil_and_gas/reservoir_management/unitization

Exploratory Units

Communitization Agreement

• 3105.2 Communitization agreements • 3105.2-3 Requirements

Royalty Rates • Step-Scale and Sliding-Scale Royalty Rates:

http://www.onrr.gov/ReportPay/PDFDocs/stepscale.pdf

• 43 CFR 3162.7-4 • Identifying what schedule royalty your lease is

subject to: http://www.blm.gov/pgdata/etc/medialib/blm/mt/blm_programs/energy/oil_and_gas/leasing/handbooks/3103.Par.12749.File.dat/part4.pdf

Permitting Application for a Permit to Drill (APD) 43 CFR 3162.3-1(d)

– Drilling plan – Surface use plan of operations – Evidence of bond coverage – BLM form 3160-3 – Operating certification – On-site inspection – Payment

Permitting BLM’s Assessment of APD Processing Time

Points to Takeaway • Leases on Federal lands may be obtained through competitive and

non-competitive processes; make sure you know the details and rules of each when seeking to submit successful bids

• Federal lands may be subject to a variety of “Stipulations” that affect when and how lands may be used

• For leases issued prior to December 22, 1987, specific lease terms will vary considerably

• There is a distinction between two-year extensions and two-year guarantees

• Inclusion in a federal exploratory unit impacts leased lands both inside and outside of the unit

• There are mechanisms in place to reinstate canceled leases and to suspend leases while waiting on the BLM

Thank You!

Melissa Munson melissa.munson@steptoe-johnson.com

(281) 203-5765

Rick Steeno richard.steeno@steptoe-johnson.com

(281) 203-5764

March 25, 2015 Energy Webcast

Practical Application of Division Order Title Opinion’s in

Oil and Gas Development

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