Mineral Leasing Act of 1920
Encyclopedia
The Mineral Leasing Act of 1920 et seq. is a United States federal law that authorizes and governs leasing
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...

 of public land
Public land
In all modern states, some land is held by central or local governments. This is called public land. The system of tenure of public land, and the terminology used, varies between countries...

s for developing deposits of coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...

, petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

, natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

 and other hydrocarbons, in addition to phosphates, sodium
Sodium
Sodium is a chemical element with the symbol Na and atomic number 11. It is a soft, silvery-white, highly reactive metal and is a member of the alkali metals; its only stable isotope is 23Na. It is an abundant element that exists in numerous minerals, most commonly as sodium chloride...

, sulphur, and potassium
Potassium
Potassium is the chemical element with the symbol K and atomic number 19. Elemental potassium is a soft silvery-white alkali metal that oxidizes rapidly in air and is very reactive with water, generating sufficient heat to ignite the hydrogen emitted in the reaction.Potassium and sodium are...

 in the United States. Previous to the act, these materials were subject to mining claims under the General Mining Act of 1872
General Mining Act of 1872
The General Mining Act of 1872 is a United States federal law that authorizes and governs prospecting and mining for economic minerals, such as gold, platinum, and silver, on federal public lands...

.

Background

Previous to the Mineral Leasing Act of 1920, the General Mining Act of 1872
General Mining Act of 1872
The General Mining Act of 1872 is a United States federal law that authorizes and governs prospecting and mining for economic minerals, such as gold, platinum, and silver, on federal public lands...

 authorized citizens to freely prospect for minerals on public lands and allowed a discoverer to stake claims to both minerals and surrounding lands for development. This open-access policy enabled a major oil rush in the West, in 1909 prompting U.S. Geological Survey Director George Otis Smith
George Otis Smith
George Otis Smith was an American geologist.-Life and career:Smith was born in Hodgdon, Maine. He graduated from Colby College in 1893 and earned a Ph.D. from Johns Hopkins University in 1896. He served as director of United States Geological Survey from 1907 to 1922 and 1923 to 1930...

 to warn Secretary of the Interior Ballinger
Richard Achilles Ballinger
Richard Achilles Ballinger was mayor of Seattle, Washington, from 1904–1906 and U.S. Secretary of the Interior from 1909–1911.Ballinger was born in Boonesboro, Iowa...

 that oil lands were being claimed so quickly they would be unavailable within a few months. Ballinger notified President Taft
William Howard Taft
William Howard Taft was the 27th President of the United States and later the tenth Chief Justice of the United States...

 who promptly created the first American oil reserve by executive order on September 27, 1909, withdrawing 3041000 acres (12,306.5 km²) of public lands in California and Wyoming from further claims, and reserving the oil for use by the United States Navy. Congress ratified the president's authority to set aside federally owned lands with the passing of the Pickett Act in 1910. The Supreme Court further affirmed the president's constitutional power to withdraw public land from use in . Following these events, Congress enacted the Mineral Leasing Act of 1920 which dictated a system of leasing and development for mining interests on federally owned lands.

Mineral Leasing Act of 1920

Provisions in the act provide a number of functions:
  • Enables entrance onto public lands to explore for minerals with permission of the government.
  • Enables drilling and extraction of minerals with authority granted by the government.
  • Enables the government to manage the exploitation of leasable minerals.
  • Enables the government to receive compensation from the lessee for the privilege of extracting minerals on federal public lands.


The Bureau of Land Management
Bureau of Land Management
The Bureau of Land Management is an agency within the United States Department of the Interior which administers America's public lands, totaling approximately , or one-eighth of the landmass of the country. The BLM also manages of subsurface mineral estate underlying federal, state and private...

 (BLM), a division of the Department of the Interior
United States Department of the Interior
The United States Department of the Interior is the United States federal executive department of the U.S. government responsible for the management and conservation of most federal land and natural resources, and the administration of programs relating to Native Americans, Alaska Natives, Native...

 (DOI), is the principal administrator of the Mineral Leasing Act. BLM evaluates areas for potential development and awards leases based on whoever pays the highest bonus during a competitive bidding period.

Leasing

The Mineral Leasing Act "establishes qualifications for leases
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...

, sets out maximum limits on the number of acres of a particular mineral that can be held by a lessee, and prohibits alien ownership of leases except though stock ownership in a corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

." Conditions of a lease under the Mineral Leasing Act vary based on the type of mineral being extracted. Phosphate and potassium leases have terms and conditions subject to readjustment at the end of each 20 year period. Sodium and sulphur lessee's have the right to renew the lease terms at the end of the first 20 year period and every 10 year period after that. Coal and oil shale leases are generally for 20 year periods, while oil and natural gas leases are generally for 10 year periods.

Royalties

Royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...

 are payments made from one party to another based on usage of an asset, often in the form of a percentage. The Mineral Leasing Act required monetary gains from the leasing of public lands to be divided three ways, except for Alaska:
  • 50 percent of gross revenues to states other than Alaska.
  • 40 percent of gross revenues to Reclamation Fund
    Reclamation fund
    The reclamation fund is a special fund established by the United States Congress under the Reclamation Act of 1902, as amended, for receipts from the sale of public lands and timber, proceeds from the Mineral Leasing Act, and certain other revenues...

    .
  • 10 percent of gross revenues to Federal Treasury
    United States Department of the Treasury
    The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

    .

  • 90 percent of gross revenues to Alaska.

Petroleum

Under the Mineral Leasing Act and later amendments, the right to produce federally-owned
petroleum (oil and natural gas) is secured for ten-year periods by competitive bidding, and goes to the party paying the highest bonus. There are three forms of payment to the government: bonus (an initial payment to the government), rental (an annual payment of $2 per acre), and royalty ( a payment of 1/8 or 12.5% of the gross value of the oil and gas produced).

Coal

Under the Mineral Leasing Act as amended and the Mineral Leasing Act for Acquired Lands of 1947 as amended, coal leases are initially obtained for a 20 year period but can be terminated in 10 years if the resources are not sufficiently developed. As with petroleum, an initial bonus must be paid to the government at the time the lease is awarded. Annual rental fees for coal are $3 per acre. Royalties are 12.5% of the gross value for surface mined coal and 8% for coal produced from underground mines.

External links

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