Leasing and Permitting for Oil and Gas Development on Federal Public Domain Lands
CRS Report for Congress
Leasing and Permitting for
Oil and Gas Development on
Federal Public Domain Lands
Updated January 26, 2006
Aaron M. Flynn
American Law Division
Ryan J. Watson
American Law Division
Congressional Research Service ˜ The Library of Congress
Leasing and Permitting for Oil and Gas Development
on Federal Public Domain Lands
A variety of statutes and agency regulations govern leasing and permitting for
oil and gas development on federal lands. This report first explains the legal
framework for oil and gas leasing and development on federal “public domain” lands,
which involves an overview of the following:
!laws and regulations affecting which public domain lands are
potentially subject to oil and gas leasing;
!development of Resource Management Plans;
!competitive and noncompetitive oil and gas leasing processes;
!terms and conditions of oil and gas leases; and
!the process surrounding applications for permits to drill.
Second, this report assesses how the recently enacted Energy Policy Act of 2005
(P.L. 109-58) will affect preexisting oil and gas development laws. The third section
of the report analyzes selected judicial and administrative decisions regarding what
steps federal environmental laws require agencies to take before issuing leases for
coalbed methane leases. Coalbed methane is a type of natural gas that is trapped in
coal seams by water pressure.
This report will be updated as developments warrant.
In troduction ......................................................1
The Legal Framework for Oil and Gas Leasing...........................2
Public Domain Lands Subject to Leasing for Oil and Gas Development...2
Development of Resource Management Plans.......................4
The Competitive Leasing Process.................................6
The Noncompetitive Leasing Process..............................7
Lease Terms and Conditions.....................................8
Applications for Permits to Drill.....................................11
U.S. Department of the Interior..................................11
U.S. Forest Service...........................................12
Analysis of the Energy Policy Act of 2005.............................13
Streamlining and Expediting Oil and Gas Development Processes......13
Arctic National Wildlife Refuge (ANWR).........................15
The Pennaco Decision.........................................17
Other CBM-Related Decisions..................................18
List of Acronyms.................................................22
Leasing and Permitting for
Oil and Gas Development on
Federal Public Domain Lands
A variety of interrelated statutes and agency regulations govern leasing and
permitting for oil and gas development on federal lands. The national mining and
minerals policy fosters and encourages the following activities:
private enterprise in ... the development of economically sound and stable
domestic mining, minerals, metal and mineral reclamation industries [and] the
orderly and economic development of domestic mineral resources, reserves, and
reclamation of metals and minerals to help assure satisfaction of industrial,1
security and environmental needs.
The Bureau of Land Management (BLM) — part of the U.S. Department of the
Interior — manages most federal mineral development and is largely responsible for
implementing this policy.2 BLM also manages a large amount of federal lands.
Federal land in the National Forest System (NFS) is under the jurisdiction of the
Forest Service, which is part of the U.S. Department of Agriculture. The Forest
Service plays a role in authorizing mineral development on NFS lands.
This report addresses the leasing and permitting of onshore, federal public
domain lands. “Public domain lands” encompass lands obtained “by treaty,
conquest, cession by States, and [certain] purchase[s].”3 The historical distinction
between public domain lands and other federal lands is reflected in the different
statutes that apply to the different types of lands.
This report first analyzes the legal framework for oil and gas leasing and
permitting on federal public domain lands managed by BLM and the Forest Service.
Second, this report assesses how the recently enacted Energy Policy of 2005 affects
these laws. Finally, this report analyzes selected judicial and administrative decisions
regarding what steps federal environmental laws require agencies to take before
issuing coalbed methane leases. Coalbed methane is a type of natural gas that is
trapped in coal seams by water pressure; it is leased separately from the coal.
1 30 U.S.C. § 21a (2000).
2 See Secretarial Order 3087, Dec. 2, 1982, as amended Feb. 7, 1983 (48 Fed. Reg. 8983).
3 Thomas Donaldson, The Public Domain 10 (William N. Parker ed., Johnson Reprint Corp.
The Legal Framework for Oil and Gas Leasing
At the dawn of the twentieth century, private entities could explore, develop,
and purchase federal public domain lands containing oil with relative ease. The
federal government permitted mineral exploration of such lands without any charge.4
Oil could be developed as a placer mineral. Full ownership of oil lands “could be
obtained for a nominal amount.”5 However, Congress’s enactment of the Mineral
Lands Leasing Act of 1920 (MLLA) ended the private acquisition of title to federal
oil lands by authorizing the Secretary of the Interior (Secretary) to issue permits for
exploration and to lease lands containing oil and gas and other defense-related
minerals.6 The first section of this report details the legal framework for such oil and
Public Domain Lands Subject to Leasing for
Oil and Gas Development
“Public domain lands” encompass lands obtained “by treaty, conquest, cession
by States, and [certain] purchase[s].”7 The historical distinction between public
domain lands and other federal lands is reflected in the different statutes that apply
to the various types of lands. The scope of this report does not encompass “acquired
lands,” which are lands “granted or sold to the United States by a State or citizen.”8
The MLLA authorizes the Secretary to lease oil and gas deposits and onshore
public domain lands containing oil and gas deposits, with the federal government
retaining title to the lands.9 This leasing authority applies to National Forest System
(NFS) lands that are reserved from the public domain, and to most reserved
subsurface mineral estates.10 However, it excludes numerous categories of lands such
as national parks and monuments, as well as lands in incorporated cities, towns, and
4 Oil Placer Act, ch. 216, 29 Stat. 526 (1897) (authorizing the issuance of patents that
conveyed full title to lands containing oil under Federal placer-mining laws), repealed by
Mineral Lands Leasing Act of 1920, ch. 85, 41 Stat. 4373 (1920). See also The Rocky
Mountain Mineral Law Foundation, Law of Federal Oil and Gas Leases, § 2.05 (2004).
5 See Pan Am. Petroleum & Transp. Co. v. United States, 273 U.S. 456, 486 (1927) (internal
citation omitted). See also The Rocky Mountain Mineral Law Foundation, supra note 3, §
6 Mineral Lands Leasing Act of 1920, ch. 85, 41 Stat. 4373 (1920), codified at 30 U.S.C. §
7 Donaldson, supra note 4, at 10.
8 Id. Statutory provisions addressing oil and gas development on lands not covered by this
report include the following: 25 U.S.C. § 391 et seq.(2000) (Indian lands); 30 U.S.C. §§
351-60 (acquired lands); and 43 U.S.C. § 1331 et seq. (mineral leases on submerged lands
in the Outer Continental Shelf). In addition, for information regarding U.S. offshore oil and
gas development, see CRS Report RL31521, Outer Continental Shelf Oil and Gas: Energy
Security and Other Major Issues, by Marc Humphries.
9 30 U.S.C. § 181.
10 See id.
villages.11 Areas within the National Wilderness Preservation System cannot be
leased, but valid rights existing as of 1984 are preserved.12 In sum, all public lands
subject to the Secretary’s authority under MLLA “which are known or believed to
contain oil or gas deposits may be leased by the Secretary.”13
However, the Secretary of the Interior cannot issue any lease for National Forest
System lands reserved from the public domain if the Secretary of Agriculture
objects.14 In addition, the U.S. Forest Service has issued separate regulations
governing certain aspects of leasing and permitting for oil and gas development on
lands within its jurisdiction.
The Secretary is also authorized to withdraw public lands managed by BLM so
that some or all potential land uses are proscribed on those lands.15 A withdrawal
involves “withholding an area of Federal land from settlement, sale, location, or
entry, under some or all of the general land laws, for the purpose of limiting activities
under those laws in order to maintain other public values in the area or reserving the
area for a particular public purpose or program.”16 However, limitations on the
Secretary’s withdrawal authority exist.17 For example, Congress can make
withdrawals, and the Secretary may not modify or revoke a congressional
wi t hdrawal . 18
12 16 U.S.C. § 1133(d)(3) (2000) (“Subject to valid rights then existing, effective January
1, 1984, the minerals in lands designated . . . as wilderness areas are withdrawn from all
forms of appropriation under the mining laws and from disposition under all laws pertaining
to mineral leasing and all amendments thereto.”).
13 30 U.S.C. § 226(a).
14 Id. § 226(h).
15 43 U.S.C. § 1714 (2000).
16 Id. § 1702(j).
17 Id. § 1714; 43 C.F.R. § 2300.0-3(a) (2004).
18 43 U.S.C. §§ 1701(a)(4), 1714(j); 43 C.F.R. § 2300.0-3(a).
Development of Resource Management Plans
U.S. Department of the Interior
The BLM manages approximately 262 million acres of public lands under the
Federal Land Policy and Management Act of 1976 (FLPMA).19 The Secretary of the
Interior must develop and revise “land use plans” for the public lands — officially
known as Resource Management Plans (RMPs) — that consider the present and
potential future uses for public lands managed by BLM.20 These RMPs serve as the
initial determinant of which lands may be subject to leasing. All activities performed
on these lands must be consistent with the RMPs.21 Thus, an RMP must allow oil
and gas development in an area in order for it to take place there.22
The Secretary generally must apply “multiple use” and “sustained yield”
principles when developing RMPs.23 “Multiple use” principles involve judiciously
managing lands in a manner that takes into account the environmental, historical, and
natural resource values of the lands and prevents their permanent impairment.24
“Sustained yield” means maintaining “high-level annual or regular periodic output
of the various renewable resources of the public lands.”25 In addition, the Secretary
is required to provide opportunities for the public and various levels of government
to participate in the development of RMPs.26 This can include procedures such as
holding public hearings, when appropriate.27 Regulations require the preparation of
an Environmental Impact Statement (EIS) or an Environmental Assessment (EA)
when producing an RMP.28
19 P.L. 94-579, 90 Stat. 2744 (1976), codified at 43 U.S.C. §§ 1701-1782.
20 43 U.S.C. § 1712; 43 C.F.R. pts. 1600, 1610.
21 43 C.F.R. § 1610.5-3, 1601.0-5.
22 See id.
23 43 U.S.C. §§ 1701(a)(7), 1732(a). An exception applies in circumstances “where a tract
of such public land has been dedicated to specific uses according to any other provisions of
law [in which case] it shall be managed in accordance with such law.” 43 U.S.C. § 1732(a).
24 Id. § 1702(c).
25 Id. § 1702(h).
26 Id. § 1712(f).
28 See 43 C.F.R. § 1601.0-6. Development of an RMP is a “major Federal action
significantly affecting the quality of the human environment”; thus, NEPA requires the
preparation of an Environmental Impact Statement (EIS). Id.; see 42 U.S.C. § 4332(2)(C).
NEPA also requires BLM to take a “hard look” at the environmental impacts of significant
proposed actions. 42 U.S.C. § 4332(2)(C). If it is unclear whether a proposed action will
have significant environmental effects, the agency may prepare an Environmental
Assessment (EA). 40 C.F.R. § 1501.3. Based on the EA, an agency may issue a finding of
no significant impact (FONSI), thereby concluding the NEPA process, or it may determine
that preparation of an EIS is necessary. Id. § 1508.13. An EIS must address numerous
The Secretary’s mandate to formulate and revise RMPs extends to all BLM-
managed public lands, no matter how they had been classified before the enactment
of FLPMA in 1976.29 The land use provisions also apply to lands that had previously
been withdrawn.30 In addition, FLPMA requires that public lands within BLM’s
jurisdiction be inventoried and identified on a continuing basis.31
U.S. Forest Service
The Forest Service also manages its lands under multiple use and sustained yield
policies.32 It develops land management plans for NFS lands by considering the
desired conditions, objectives, suitability of areas for various uses, and other
criteria.33 As with the Department of the Interior’s planning process, the laws
governing Forest Service land management and implementation require public
notification and opportunities for public participation.34 When analyzing Forest
Service lands for potential leasing, the Forest Service classifies lands into three
!(1) lands that will be “[o]pen to development subject to the terms
and conditions of the standard oil and gas lease form”
!(2) lands that will be “[o]pen to development but subject to
constraints that will require the use of lease stipulations”
!(3) lands that will be “[c]losed to leasing, distinguishing between
those areas that are being closed through exercise of management
direction, and those closed by law, regulation, etc.”35
The Forest Service must also comply with the National Environmental Policy
Act of 1969 (NEPA) when analyzing NFS lands for potential leasing.36 Once the
Forest Service has completed its analysis of which NFS lands will be available for
issues, including the environmental impact of the proposed action, alternatives to the
proposed action, and any irreversible commitments of resources which would be involved
if the proposed action takes place. 42 U.S.C. § 4332(2)(C).
29 43 U.S.C. § 1712(a).
31 Id. § 1711.
32 Multiple Use-Sustained Yield Act, P.L. 86-517, 74 Stat. 215 (1960), codified at 16 U.S.C.
33 16 U.S.C. § 1604; 70 Fed. Reg. 1023 (Jan. 5, 2005) (to be codified at, inter alia, 36 C.F.R.
§§ 219.5, 219.7).
34 16 U.S.C. §§ 1604(d), 1612; 36 C.F.R. § 219.9.
35 36 C.F.R. § 228.102(c).
36 16 U.S.C. § 1604(g); 36 C.F.R. § 228.102(a).
leasing, it notifies BLM of its decisions.37 Forest Service authorization for BLM to
lease specific lands may follow.38
The Competitive Leasing Process
The MLLA authorizes both competitive and noncompetitive leasing procedures.
Usually lands go through the competitive leasing process first. When BLM posts a
list of lands available for competitive leasing, private entities may respond by
submitting nominations for parcels to be auctioned.39 No unit being auctioned can
exceed 2,560 acres, except in Alaska, where the maximum unit acreage is 5,760
acres.40 In addition, each unit must be “as nearly compact as possible.”41
The Secretary must provide forty-five days notice before offering public lands
for leasing, including a thirty-day period for receiving public comments after notice
is published in the Federal Register.42 Competitive bidding must be held on a
quarterly basis in each state where public lands are available for leasing.43 The
Secretary may also authorize additional opportunities for bidding if he considers
them to be necessary.44
Once the public notice requirements have been satisfied, the public lands are
offered for competitive leasing through an oral auction.45 A national minimum
acceptable bid of $2 per acre applies to the auction.46 Any bids for less than the
national minimum bid must be rejected.47 A competitive bid constitutes a legally
binding commitment and cannot be withdrawn.48 The MLLA requires the Secretary
to accept the highest bid from a responsible qualified bidder whose bid meets or
exceeds the national minimum acceptable bid.49
The winning bidder at a competitive auction must submit the following
payments on the day of sale, unless otherwise specified: (1) the minimum bonus bid
of $2 per acre; (2) the first year’s rental payment; and (3) a $75 per parcel
37 36 C.F.R. § 228.102(d).
38 Id. § 228.102(e).
39 See 43 C.F.R. § 3120.3-1.
40 30 U.S.C. § 226(b)(1).
42 43 C.F.R. §§ 3120.3, 3120.4-2; see 30 U.S.C. § 226(f).
43 30 U.S.C. § 226(b)(1).
46 Id. § 226(b)(1)(B); 43 C.F.R. § 3120.1-2.
47 30 U.S.C. § 226(b)(1).
48 43 C.F.R. § 3120.5-3(a).
49 30 U.S.C. § 226(b)(1).
administrative fee.50 Then, the balance of the bonus bid, if applicable, is due within
ten working days.51 The lease is issued within sixty days of payment of the remainder
of the bonus bid.52 The lease is also conditioned upon a royalty payment of at least
unless the Secretary suspends, waives, or reduces the royalty.54
The Noncompetitive Leasing Process
If no bids are received at a competitive bidding auction — or if all bids
submitted are for less than the national minimum acceptable bid — the land will be
offered for noncompetitive leasing within thirty days.55 This noncompetitive leasing
remains available for two years after the competitive bidding auction.56
The first qualified person who applies for a noncompetitive lease and pays the
$75 application fee is entitled to receive the lease without having to competitively
bid.57 All noncompetitive offers received during the first business day after the last
day of the competitive auction are considered to have been submitted simultaneously;
in such cases, a lottery determines the lease winner.58 Unlike competitive bids,
noncompetitive offers may be withdrawn by the offeror within sixty days of filing the
offer if no lease has yet been signed on the government’s behalf.59 As with
competitive leases, a noncompetitive lease is conditioned upon payment of a 12.5%
royalty in amount or value of the oil or gas removed or sold from the lease.60
Additionally, there are minimum and maximum acreage limitations for
noncompetitive leases.61 If these criteria are met, BLM will issue the lease within
sixty days of the Secretary identifying a qualified applicant.62
50 43 C.F.R. § 3120.5-2.
52 30 U.S.C. § 226(b)(1).
54 See id. § 209.
55 Id. § 226(b)(1), (c).
56 Id.; 43 C.F.R. § 3120.6.
57 30 U.S.C. § 226(c)(1).
58 43 C.F.R. § 3110.2(a).
59 Id. § 3110.6.
60 30 U.S.C. § 226(c)(1). As mentioned above, the Secretary may suspend, waive, or reduce
rentals or royalties under certain conditions. See, e.g., 30 U.S.C. § 209.
61 See 43 C.F.R. § 3110.3.
62 30 U.S.C. § 226(c)(1).
If no application for a noncompetitive lease is submitted during the two years
that the land is available for noncompetitive leasing, the process for leasing the land
will again be a competitive oral auction.63
NEPA applies to the competitive and noncompetitive leasing processes, possibly
requiring preparation of a supplemental EIS (SEIS) or a new EA or EIS, unless
reliance on old documents is sufficient or the agency issues a FONSI.64
Lease Terms and Conditions
General Statutory Restrictions
In addition to the processes affecting where leasing can take place (discussed
above), general restrictions on leasing address who can lease and how much land they
can lease. First, public lands containing oil and gas deposits may only be leased to
U.S. citizens, associations of U.S. citizens, corporations organized under U.S. laws
or the laws of any State, and municipalities.65 In addition, citizens of a country that
denies similar privileges to U.S. citizens and corporations may not control any
interest in federal leases.66 Second, no entity is permitted to own or control oil or gas
leases (including options for such leases) under MLLA in excess of 246,080 acres in
any one State other than Alaska.67 Other aggregate acreage limitations include
limitations pertaining to options68 and to combined direct and associational/corporate
Payment Terms: Royalties and Rentals
Leases are conditioned upon payment to the Government of a royalty of at least
12.5% in amount or value of oil or gas production that is removed or sold from the
leased land.70 Leases subject to rates in effect after December 22, 1987 must
generally pay a 12.5% royalty, but this percentage can increase if a lease is cancelled
because of late payments and then reinstated.71 The Secretary also has the power to
reduce the royalty on a noncompetitive lease if he deems it equitable to do so or if
63 30 U.S.C. § 226(c)(2)(A).
64 See Spiller v. White, 352 F.3d 235 (5th Cir. 2003); Sierra Club v. Peterson, 717 F.2d 1409
(D.C. Cir. 1983); 40 C.F.R. §§ 1502.9, 1502.20, 1504.1; 43 C.F.R. § 3101.1-3.
65 30 U.S.C. § 181.
67 Id. § 184(d)(1); 43 C.F.R. § 3101.2-1. For Alaska, the limit is 300,000 acres in the
northern leasing district and 300,000 acres in the southern leasing district, of which no more
than 200,000 acres may be held under options in each of the two leasing districts. 30 U.S.C.
§ 184(d); 43 C.F.R. § 3101.2-1.
68 30 U.S.C. § 184(d)(2).
69 Id. § 184(e)(1).
70 Id. § 226(b)(1).
71 See 43 C.F.R. § 3103.3-1(a).
circumstances could “cause undue hardship or premature termination of production”
absent such a reduction.72 For oil and gas leases, the royalty must be paid in value
unless the Department of the Interior specifies that a royalty payment-in-kind is
required.73 Once the royalty has been paid, the Secretary is required to sell any
royalty oil or gas “except whenever in his judgment it is desirable to retain the same
for the use of the United States.”74
In addition to royalties, leases are conditioned upon payment of annual rentals.75
Generally, the rental rate for the first five years of a lease is $1.50 per acre per year,
with the rate increasing to $2 per acre for each additional year of the lease.76
However, there is some variation in rental amounts for certain specific categories of
lands.77 For leases issued after December 22, 1987, a minimum royalty in lieu of the
rental is due once oil or gas has been discovered on the leased land.78 The amount
of this minimum royalty is equal to the annual rental that would otherwise have been
due.79 Perhaps most important, rental payments are not due on acreage for which
royalties or minimum royalties are being paid, “except on nonproducing leases when
compensatory royalty has been assessed in which case annual rental as established
in the lease shall be due in addition to compensatory royalty.”80
The Secretary is authorized to waive, suspend, or reduce rentals and royalties
under certain conditions.81 Money received from royalties and rentals is initially paid
into the U.S. Treasury.82 Fifty percent of the funds then go to the State where the
land or mineral deposit is located.83 Forty percent of the funds are allocated into the
Reclamation Fund under the Reclamation Act of 1902 for projects that provide water
to arid Western states.84 Because Alaska is not served by the Reclamation Fund, 90
percent of the funds collected from federal leases in Alaska are allocated to the State
72 30 U.S.C. § 188(i)(1).
73 30 C.F.R. §§ 202.100, 202.150.
74 30 U.S.C. § 192.
75 Id. § 226(d).
76 Id.; 43 C.F.R. § 3103.2-2(a). The rental payment for the first year of the lease must be
included with each competitive bid or noncompetitive lease offer. 43 C.F.R. § 3103.2-1.
77 See 43 C.F.R. § 3103.2-2; see also 30 U.S.C. § 226(d).
78 43 C.F.R. § 3103.3-2(a); see also 30 U.S.C. § 226(d).
79 43 C.F.R. § 3103.3-2(a); see also 30 U.S.C. § 226(d).
80 Id. § 3103.2-2(c); see also 30 U.S.C. § 226(d).
81 See, e.g., 30 U.S.C. § 209.
82 Id. § 191(a).
85 See id.
Length of Leases, Extensions, and Cancellations
The primary term for competitive and noncompetitive leases is ten years.86
Leases can be extended because of, inter alia, drilling operations or oil or gas
production. The existence of an approved cooperative plan can also affect
First, a lease will be extended for two years because of drilling if three criteria
!(1) actual drilling operations began before the end of the primary
!(2) actual drilling operations are being “diligently prosecuted”88 at
the end of the primary lease term; and
!(3) rental was timely paid.
Second, a lease that meets these criteria will be extended “so long as oil or gas
is being produced in paying quantities.”89 A lease that has been extended because of
production does not terminate simply because production stops, as long as the lessee
starts reworking or drilling operations within sixty days after production ceases and
conducts them with reasonable diligence during the non-productive period.90
Furthermore, if a lease initially extended because of drilling begins yielding oil or gas
in paying quantities during the two-year drilling extension, the lease can be extended
agai n. 91
Finally, lessees may collectively adopt and operate under a cooperative or unit
plan for a particular area if the Secretary considers such a plan to be in the public
interest.92 All leases subject to such a plan will be extended if any of the leases
covered by the plan qualify for a drilling or production extension.93
Any MLLA lease can be cancelled or forfeited if the lessee fails to comply with
MLLA provisions, the lease’s provisions, or regulations promulgated pursuant to
86 Id. § 226(e).
87 Id.; 43 C.F.R. § 3107.1. Other regulations regarding the continuation, extension, and
renewal of leases are set forth in 43 C.F.R. § 3107.1 et seq.
88 “Actual drilling operations shall be conducted in a manner that anyone seriously looking
for oil or gas could be expected to make in that particular area, given the existing knowledge
of geologic and other pertinent facts.” 43 C.F.R. § 3107.1.
89 30 U.S.C. § 226(e); 43 C.F.R. § 3107.2-1 (emphasis added).
90 30 U.S.C. § 226(i); 43 C.F.R. § 3107.2-2.
91 See 30 U.S.C. § 226(e).
92 Id. § 226(m).
93 Id.; 43 C.F.R. § 3107.3-1.
MLLA.94 In some situations the Secretary has the authority to cancel the lease, but
some circumstances require a judicial proceeding to cancel the lease.95 In addition,
MLLA provides for automatic termination “upon failure of a lessee to pay rental on
or before the anniversary date of the lease, for any lease on which there is no well
capable of producing oil or gas in paying quantities.”96 However, the Secretary may
reinstate automatically terminated leases in some cases.97
Applications for Permits to Drill
U.S. Department of the Interior
Operators98 must submit an Application for a Permit to Drill (APD) for each oil
or gas well.99 Without an approved APD, operators cannot begin drilling operations
or cause surface disturbances that are preliminary to drilling.100 In fact, the APD
process must begin at least thirty days prior to the commencement of operations.101
A complete APD must include the following:102
!a drilling plan;
!a surface use plan of operations, including drillpad locations and
plans for reclaiming the surface;
!evidence of bond coverage;
!Form 3160-3; and
!any other information that may be required.
Once BLM receives an APD, it must post information for public inspection for
at least thirty days before it may act on the APD.103 Another pre-approval
requirement is that BLM must prepare an environmental record of review or an
94 30 U.S.C. § 188(a); 43 C.F.R. § 3108.3(a), (b).
95 See 43 C.F.R. § 3108.3(a), (b).
96 30 U.S.C. § 188(b).
97 See id. § 188(c)-(e), (g), (j).
98 “Operator means any person or entity including but not limited to the lessee or operating
rights owner, who has stated in writing to the authorized officer that it is responsible under
the terms and conditions of the lease for the operations conducted on the leased lands or a
portion thereof.” 43 C.F.R. § 3160.0-5.
99 Id. § 3162.3-1(c); see 43 U.S.C. § 1732(b).
100 43 C.F.R. § 3162.3-1(c).
101 Id. § 3162.3-1(d).
102 Id. § 3162.3-1(d), (f).
103 30 U.S.C. § 226(f); 43 C.F.R. § 3162.3-1(g).
environmental assessment.104 Based on these documents, BLM decides whether an
EIS is required.105 Additionally, an adequate bond or other financial arrangement is
required before the operator begins any surface-disturbing activities.106
Within five working days of the end of the public notice period, BLM must
choose one of four options:107
!(1) approve the application as submitted;
!(2) approve the application with modifications and/or conditions;
!(3) disapprove the application; or
!(4) delay final action.
BLM must approve a surface use plan of operations addressing proposed
surface-disturbing activities before a permit to drill on lands BLM manages may be
granted.108 BLM and the Forest Service have proposed joint regulations regarding
surface use plans of operations.109
U.S. Forest Service
An approved surface use plan of operations addressing proposed surface-
disturbing activities is also required before a permit to drill on NFS lands may be
granted and before any surface-disturbing operations may begin.110 The operator
must submit its proposed surface use plan of operations to BLM as part of its APD.111
When the proposal pertains to NFS lands, BLM forwards the proposed surface use
plan of operations to the Forest Service.112
The level of detail required in a proposed plan varies depending upon the “type,
size, and intensity of the proposed operations and the sensitivity of the surface
resources that will be affected by the proposed operations.”113 When evaluating a
proposed surface use plan of operations, the Forest Service must ensure that the
proposal is consistent with the “approved forest land and resource management plan”
104 43 C.F.R. § 3162.5-1(a).
106 30 U.S.C. § 226(g).
107 43 C.F.R. § 3162.3-1(h).
108 30 U.S.C. § 226(g).
109 On July 27, 2005, BLM and the Forest Service published a joint proposed rule that would
revise an existing Onshore Oil and Gas Order. “The revised Order would address the
submittal of a complete [APD],” including drilling plans and surface use plans of operations.
See 70 Fed. Reg. 43,349 (proposed July 27, 2005) (to be codified at 36 C.F.R. pt. 228 and
110 30 U.S.C. § 226(g); 36 C.F.R. § 228.106(a).
113 Id. § 228.106(c).
for that area of land.114 During the evaluation process, the Forest Service must also
comply with NEPA, as well as appropriate Forest Service regulations and policies.115
In addition, the Forest Service can require that the operator increase the amount of
its bond if it “determines [that] the financial instrument held by [BLM] is not
adequate to ensure complete and timely reclamation and restoration” of the NFS
Ultimately, the Forest Service must decide among four options:117
!(1) approve the plan
!(2) approve the plan “subject to specified conditions”
!(3) disapprove the plan
!(4) delay the plan because additional time is needed to reach a
Once it has made its decision regarding the proposed surface use plan of
operations, the Forest Service forwards the decision to BLM.118
Analysis of the Energy Policy Act of 2005
In August 2005, the Congress passed and the President signed the Energy Policy
Act of 2005 (2005 EPACT).119 This comprehensive law touches upon many aspects
of U.S. energy regulation, and among its provisions were several changes to the law
governing federal oil and gas leases on public domain lands. This section of the
report highlights selected provisions from the 2005 EPACT relating to these topics.
It also addresses selected provisions that were included in either the House or Senate
bill, but were not included in the final legislation. The topics addressed by this
section can be classified into four categories: (1) streamlining and expediting oil and
gas development processes; (2) a NEPA-related provision; (3) the Arctic National
Wildlife Refuge; and (4) miscellaneous provisions.
Streamlining and Expediting Oil and Gas
The 2005 EPACT requires the Secretary of the Interior and the Secretary of
Agriculture to enter into a memorandum of understanding regarding issues such as
the establishment of procedures to “ensure timely processing” of oil and gas lease
114 16 U.S.C. § 1604(i); 36 C.F.R. § 228.107(a)(2).
115 36 C.F.R. § 228.107(a); see 16 U.S.C. § 1604(g).
116 36 C.F.R. § 228.109(a).
117 Id. § 228.107(b).
118 Id. § 228.107(d).
119 P.L. 109-58, 119 Stat. 594 (Aug. 8, 2005) (hereinafter 2005 EPACT).
applications, surface use plans of operation, and APDs.120 This memorandum must
also ensure that lease stipulations are consistently applied and are “only as restrictive
as necessary to protect the resource for which the stipulations are applied.”121
The Secretary of the Interior — in consultation with the Secretary of Agriculture
when NFS lands are involved — must also conduct an internal review of Federal
onshore oil and gas leasing and permitting practices and subsequently submit a report
to Congress detailing steps to improve the process.122 The Secretary of the Interior
is also required to establish a Federal Permit Streamlining Pilot Project.123
Under the 2005 EPACT, the Secretary of the Interior is required to ensure
expeditious compliance with 42 U.S.C. § 4332(2)(C), which is the NEPA provision
that requires the preparation of an EIS for major Federal actions that significantly
affect the quality of the human environment.124 More specifically, the Secretary of
the Interior must propose regulations containing deadlines for making decisions on
RMPs, lease applications, surface use plans of operations, and APDs.125 The 2005
EPACT also requires the Secretary of Agriculture to “ensure expeditious compliance
with all applicable environmental and cultural resources laws.”126
The 2005 EPACT establishes that certain actions taken by either the Secretary
of the Interior or by the Secretary of Agriculture (when NFS lands are involved)
“shall be subject to a rebuttable presumption that the use of a categorical exclusion
under [NEPA] would apply if the activity is conducted pursuant to [MLLA] for the
purpose of exploration or development of oil or gas.”127
120 2005 EPACT § 363 (to be codified at 42 U.S.C. §15922); see also H.R. 6, 109th Cong.
§§ 344, 2024 (2005); Senate Amendment to H.R. 6, 109th Cong. § 343 (2005).
121 2005 EPACT § 363 (to be codified at 42 U.S.C. §15922); see also H.R. 6, §§ 344, 2024;
Senate Amend. to H.R. 6, § 343.
122 2005 EPACT § 361; see also H.R. 6, § 2022; Senate Amend. to H.R. 6, § 341.
123 2005 EPACT § 365 (to be codified at 42 U.S.C. § 15924); see also H.R. 6, § 2026; Senate
Amend. to H.R. 6, § 344.
124 2005 EPACT § 362 (to be codified at 42 U.S.C. § 15921); see also H.R. 6, § 2023; Senate
Amend. to H.R. 6, § 342.
125 2005 EPACT § 362 (to be codified at 42 U.S.C. § 15921); see also H.R. 6, § 2023; Senate
Amend. to H.R. 6, § 342.
126 2005 EPACT § 362 (to be codified at 42 U.S.C. § 15921); see also Senate Amend. to
H.R. 6, § 342.
127 2005 EPACT § 390. Those activities are as follows:
(1) Individual surface disturbances of less than 5 acres so long as the total
surface disturbance on the lease is not greater than 150 acres and site-specific
analysis in a document prepared pursuant to NEPA has been previously
(2) Drilling an oil or gas well at a location or well pad site at which drilling has
The House bill had included a provision that differed from the NEPA provision
adopted by the Conference Committee. The House bill had declared that certain
actions that the Secretary of the Interior takes “for the purpose of exploration or
development of a domestic Federal energy source” are not subject to the NEPA
provision requiring the preparation of an EIS.128 Exempted actions would have
included drilling an oil or gas well where drilling had previously occurred and
drilling an oil or gas well “within a developed field for which an approved land use
plan or any environmental document prepared pursuant to [NEPA] analyzed such
drilling as a reasonably forseeable activity.”129
Arctic National Wildlife Refuge (ANWR)
One much-debated difference between the House and Senate energy bills had
been the House bill’s provisions requiring the Secretary of the Interior to establish
a competitive oil and gas leasing program in the Arctic National Wildlife Refuge
(ANWR).130 The 2005 EPACT does not include these provisions. However, several
of the key ANWR provisions under the House bill are detailed in the following
paragraph, and may be relevant to future legislative proposals.
Under the House bill, ANWR lands would have been available for leasing to
any person qualified to obtain a lease under MLLA.131 Bids would have been
submitted as sealed competitive bids.132 Two unique ANWR provisions in the House
bill included (1) a provision requiring the first lease sale to be for at least 200,000
acres, with additional sales to be conducted as long as there is sufficient interest in
development133 and (2) a provision directing that the State of Alaska would receive
occurred previously within 5 years prior to the date of spudding the well.
(3) Drilling an oil or gas well within a developed field for which an approved
land use plan or any environmental document prepared pursuant to NEPA
analyzed such drilling as a reasonably foreseeable activity, so long as such plan
or document was approved within 5 years prior to the date of spudding the well.
(4) Placement of a pipeline in an approved right-of-way corridor, so long as the
corridor was approved within 5 years prior to the date of placement of the
(5) Maintenance of a minor activity, other than any construction or major
renovation or a building or facility. Id.
128 H.R. 6, § 2055 (referring to the NEPA provision codified at 42 U.S.C. § 4332(2)(C)).
130 Id. § 2203.
131 Id. § 2204 (referring to the MLLA provision codified at 30 U.S.C. § 181).
133 See id. § 2204.
Coastal Plain Local Government Impact Aid Assistance Fund and miscellaneous
receipts within the U.S. Treasury.134
Miscellaneous relevant provisions contained in the 2005 EPACT include the
!The Secretary of the Interior must reduce the royalty rate for oil and
gas production on “marginal properties” (i.e., leases or units
producing less than a specified amount), under certain conditions.135
!The Secretary of the Interior may reinstate leases that were
terminated because of the lessee’s failure to timely pay the rental
amount due, under certain modified conditions.136
!The Secretary of the Interior must determine that receiving royalties
in-kind would provide greater or equal benefits than receiving
royalties in-value before accepting any royalties in-kind.137
!The Secretary of the Interior must conduct a study regarding split
!The Secretary of Energy must conduct a study of petroleum and
natural gas storage capacity and operational inventory levels.139
134 See id. §§ 2209, 2212(d).
135 2005 EPACT § 343 (to be codified at 42 U.S.C. § 15903); see also H.R. 6, § 2003; Senate
Amend. to H.R. 6, § 313.
136 2005 EPACT § 371 (to be codified at 30 U.S.C. § 188 note); see also Senate Amend. to
H.R. 6, § 348.
137 2005 EPACT § 342 (to be codified at 42 U.S.C. 15902); see also H.R. 6, § 2002; Senate
Amend. to H.R. 6, § 312.
138 2005 EPACT § 1835; see also H.R. 6, § 2051; Senate Amend. to H.R. 6, § 1321.
139 2005 EPACT § 1801; see also H.R. 6, § 1601; Senate Amend. to H.R. 6, § 1319.
Recent Litigation Surrounding Coalbed
Coalbed methane (CBM) is a natural gas that is trapped in coal seams by water
pressure. Developers extract CBM by pumping water into coal seams to decrease the
water pressure, thereby releasing the CBM.140 In the second half of the 1990s, CBM
production “increased dramatically to represent a significant new source of natural
gas for many Western states.”141 In 1999, the Supreme Court held that CBM could
be leased separately from coal.142 Recently, environmental groups, developers, and
BLM have litigated issues surrounding what actions constitute compliance with
FLPMA and NEPA in the context of CBM development. These issues have
developed through several cases adjudicated by federal courts and the Interior Board
of Land Appeals (IBLA), which is part of the U.S. Department of the Interior.
The Pennaco Decision
In one prominent case, environmental groups challenged a BLM decision to143
issue CBM leases to Pennaco, an energy developer. When it auctioned the leases,
BLM relied on two documents to purportedly satisfy NEPA requirements:144
(1) an RMP and EIS that were prepared before the leases were issued, but did not
specifically address CBM extraction (“the Buffalo RMP/EIS”)
(2) a draft EIS (DEIS) that was prepared after the leases were issued, but did
address the potential environmental impacts of CBM development (“the Wyodak
The BLM also determined that the Pennaco leases conformed with the Buffalo RMP,145
thus satisfying FLPMA. However, environmental groups alleged that the
environmental impacts from CBM development were different than the impacts from146
conventional oil and gas development. Thus, they argued that BLM did not take
140 Frequently Asked Questions: Coalbed Methane, Montana State University Department
of Land Resources and Environmental Sciences, at [http://waterquality.montana.edu/docs
/methane/cbmfaq.shtml] (last modified July 18, 2005).
141 Coal Bed Methane Primer: New Source — Environmental Implications, ALL Consulting
and the Montana Board of Oil and Gas Conservation, at [http://bogc.dnrc.state.mt.us] (Feb.
142 See Amoco Prod. Co. v. S. Ute Indian Tribe, 526 U.S. 865, 877-80 (1999) (stating that
“[t]o the extent Congress had an awareness of it, there is every reason to think it viewed the
extraction of CBM gas as drilling for natural gas, not mining coal”).
143 Pennaco Energy, Inc. v. U.S. Dep’t of the Interior, 377 F.3d 1147 (10th Cir. 2004).
144 Id. at 1152.
146 Id. at 1152-53.
the requisite “hard look” at the potential environmental impacts of issuing the
The Interior Board of Land Appeals sided with the environmental groups by
finding that NEPA had not been satisfied and remanding to BLM for “additional
appropriate action.”148 The IBLA found the Buffalo RMP/EIS to be inadequate
because it did not specifically address CBM development, which the IBLA
considered to be significantly different than the conventional development analyzed
by the Buffalo RMP/EIS.149 For example, the IBLA concluded that water production
resulting from CBM extraction is significantly greater than water production from
conventional oil and gas development and that CBM development posed unique air
quality concerns.150 Further, the IBLA explained that the Wyodak DEIS did not
satisfy NEPA because it was a post-leasing analysis.151 In particular, because it was
a post-leasing analysis, the Wyodak DEIS “did not consider reasonable alternatives
available in a leasing decision, including whether specific parcels should be leased
[and] appropriate lease stipulations.”152 Although the IBLA’s decision was reversed
by a federal district court,153 the Tenth Circuit Court of Appeals agreed with the
IBLA.154 In Pennaco Energy, Inc. v. United States Department of the Interior, the
Tenth Circuit held that “the IBLA gave due consideration to the relevant factors and
that the IBLA’s conclusion was supported by substantial evidence in the
Other CBM-Related Decisions
Pennaco appears to be the key Circuit Court decision on the merits of a case
applying FLPMA and NEPA to CBM development in this context. However, a
variety of other judicial and administrative decisions have addressed similar issues.
These cases often turn on fact-intensive, case-by-case determinations. Several such
decisions are briefly summarized below.
In Northern Plains Resource Council, Inc. v. United States Bureau of Land
Management, BLM had amended an RMP and prepared an EIS to address the
148 Wyoming Outdoor Council, 156 I.B.L.A. 347, 359 (U.S. Dep’t of the Interior Apr. 26,
149 Id. at 358.
151 Id. at 358-59.
153 Pennaco Energy, Inc. v. U.S. Dep’t of the Interior, 266 F. Supp. 2d 1323, 1330-31 (D.
154 Pennaco, 377 F.3d at 1162.
155 Id. at 1156.
impacts of oil and gas leasing in several areas.156 These documents analyzed and
allowed small-scale exploratory CBM drilling.157 However, they stated that “further
environmental studies would have to be completed before commercial production
would be allowed.”158 Years later, after receiving APDs for the covered land, BLM
completed EAs and made FONSIs for numerous CBM wells.159 Based on the
FONSIs, BLM approved the APDs without preparing an EIS.160 BLM later
recognized the energy industry’s intention to engage in full-field CBM development
on some land, prompting it to prepare a new statewide EIS and proposed RMP
amendments addressing the environmental impacts of large-scale CBM
development.161 The United States District Court for the District of Montana rejected
the plaintiff’s argument that the original RMP and EIS were inadequate, thus
violating FLPMA and NEPA.162 It held that the disputed APDs were all for test wells
and thus fell within the scope of the exploratory drilling contemplated by the original
documents.163 Further, the court explained that once BLM had begun preparing a
new EIS to address full-field development, “it was not required to halt lease sales, as
long as [the leases] were in conformance with the existing plan.”164 The Ninth
Circuit Court of Appeals affirmed this decision on procedural grounds because the
plaintiff’s challenge was barred by the statute of limitations.165
In subsequent litigation, the same plaintiff challenged the new statewide EIS and
proposed RMP amendments, which authorized full-field CBM development in some
areas.166 The United States District Court for the District of Montana agreed with one
of the plaintiff’s two primary arguments.167 It held that BLM should have considered
a “phased development alternative” as an alternative to full-field CBM
156 N. Plains Res. Council, Inc. v. U.S. Bureau of Land Mgmt., 298 F. Supp. 2d 1017, 1020
(D. Mont. 2003).
158 Id. at 1020-21.
159 Id. at 1021.
161 See id.
162 Id. at 1019, 1022-24.
163 Id. at 1023.
164 Id. at 1024.
165 N. Plains Res. Council v. U.S. Bureau of Land Mgmt., 107 Fed. Appx. 166 (9th Cir.
166 N. Plains Res. Council v. U.S. Bureau of Land Mgmt., 2005 U.S. Dist. LEXIS 4678 at *6
(D. Mont. Feb. 25, 2005).
167 See id. at *29, *33.
development.168 However, it also held that BLM was justified in conducting two
separate studies of the area, rather than conducting one larger study.169
In San Juan Citizens’ Alliance v. Babbitt, plaintiffs argued that BLM had acted
arbitrarily and capriciously — thus violating NEPA — by approving CBM wells at
twice the density that was contemplated by existing environmental documents.170
Prior to approving the challenged CBM wells, BLM had issued a statewide EIS as
well as preparing an EA and making a FONSI for a smaller area within the state.171
However, the plaintiffs claimed that BLM should have either created a new EIS or
a supplemental EIS (SEIS) to sufficiently address the cumulative environmental
impacts of the existing wells combined with the impacts of the newly approved
wells.172 Plaintiffs asserted that new information shedding light on the environmental
impacts of CBM development had become available since the issuance of the original
documents.173 Plaintiffs also argued that BLM had violated FLPMA by approving
CBM development that allegedly did not conform to the RMP.174 The defendants
moved to dismiss, and the United States District Court for the District of Colorado
denied the motion.175
Several IBLA decisions also address similar issues. In the 2003 matter of
Wyoming Outdoor Council, the IBLA ruled that BLM had not taken the NEPA-
mandated “hard look” at water quality issues associated with CBM development in
one area.176 The IBLA found the BLM’s water quality analysis to be inadequate
because it was based on only one CBM well sample and neither of BLM’s EAs
addressed “any deleterious impact of CBM discharge water due to its chemical
composition.”177 The IBLA also found that BLM should have considered the
cumulative environmental impacts of the new wells combined with some nearby
wells that met “the geographical proximity test for inclusion in a cumulative impacts
anal ys i s .”178
168 Id. at *29.
169 Id. at *33. One study addressed land in Wyoming, while the other addressed land in
Montana. Id. at *31. The court stated that the timing of the two proposals varied, the scope
of the studies differed, and that CBM was being developed at significantly different paces
in the two states. Id. at *33-34.
170 San Juan Citizens’ Alliance v. Babbitt, 228 F. Supp. 2d 1224, 1226-27 (D. Colo. 2002).
171 Id. at 1227.
172 Id. at 1226.
173 Id. at 1228.
174 Id. at 1226.
175 Id. at 1233. It appears that this case was not further litigated after this ruling.
176 Wyoming Outdoor Council, 158 I.B.L.A. 155, 163 (U.S. Dep’t of the Interior Jan. 9,
178 Id. at 173-74.
In the 2004 matter of Western Slope Environmental Resource Council, the IBLA
[T]he appropriate time for considering the potential impacts of oil and gas
exploration and development is when BLM proposes to lease public lands for oil
and gas purposes because leasing, at least without [no surface occupancy
stipulations], constitutes an irreversible and irretrievable commitment to permit179
The IBLA went on to hold that the appellants had not proven that the environmental
impacts of CBM development in the disputed area would be different from the
impacts of conventional oil and gas development.180 Even though the unique
environmental impacts of CBM had been recognized in some cases, the IBLA
emphasized that the appellants had not met their burden of proof in this particular
case.181 Evidence indicated that the disputed coalbeds were located far beneath the
surface and that there was a “lack of transmissivity of the coal.”182 According to the
IBLA, this evidence suggested that CBM extraction in this area would not produce
a large amount of water, thus limiting the environmental impacts that would occur.183
179 W. Slope Envtl. Res. Council, 163 I.B.L.A. 262, 285 (U.S. Dep’t of the Interior Oct. 28,
180 Id. at 289-290.
182 Id. at 286, 289.
183 Id. at 286.
List of Acronyms
2005 EPACTEnergy Policy Act of 2005
ANWRArctic National Wildlife Refuge
APDApplication for a Permit to Drill
BLMBureau of Land Management
DEISDraft Environmental Impact Statement
EISEnvironmental Impact Statement
FLPMAFederal Land Policy and Management Act of 1976
FONSIFinding of No Significant Impact
IBLAInterior Board of Land Appeals
MLLAMineral Lands Leasing Act of 1920
NEPANational Environmental Policy Act of 1969
NFSNational Forest System
RMPResource Management Plan
SEISSupplemental Environmental Impact Statement