Private Acquired Lease Administration

EMS TRANSMISSION:
Instruction Memorandum ES-2017-08
Expires: 09/30/2020

To: All Eastern States Employees   

From: Karen E. Mouritsen, State Director, Eastern States

Subject: Private Acquired Lease Administration

Policy/Action: The BLM's mandate, laid out in the Federal Land Policy and Management Act of 1976 (FLPMA), requires the agency to manage the national public lands for multiple use and sustained yield. According Section 103(e) of FLPMA, as codified in 43 USC 1702(e), ''[t]he term 'public lands' means any land and interest in land owned by the United States. . . . without regard to how the United States acquired ownership." Therefore, the BLM is responsible of administration of mineral interests acquired by the United States, even when the acquired mineral interest is encumbered by an existing PAQ. Current Department of the Interior (DOI) guidance, in the form of a 1983 Solicitor Memorandum (attached), states that the (then) current oil and gas leasing and development federal regulatory scheme cannot be applied to a PAQ. However, this guidance goes on to state BLM has a number of rights granted either explicitly or implicitly by the leases themselves as well as those rights which flow inherently from lessor­ lessee relationships under the laws of the state where the PAQ is located.

The BLM ES Northeastern States District and Southeastern States District (District) administer PAQs, defined in Background, in accordance with said departmental guidance. This IM will provide BLM ES procedures for: (I) PAQ Serialization (2) PAQ Accounting; (3) PAQ Transfer and Assignment; (4) PAQ Operations; (5) PAQ Closure; and (6) PAQ Amendment.

1. PAQ Serialization

PAQs are brought to the attention of BLM ES multiple ways, including notifications from surface management agency (SMA), notification from Lessee, or discovery during BLM review of mineral title and ownership. The District will identify a PAQ lead who would track the PAQ progress through the process. When the District is given notice of a PAQ that is not currently in BLM records (paper records, LR2000, and AFMSS), an entry will be immediately entered into a tracking system established by the District.  The PAQ will then be recorded in accordance with the attached PAQ Serialization Checklist, and the procedures discussed below.

1.1. Adjudication of Unrecorded PAQs

Prior to recording a PAQ in federal records/databases (including paper files, LR2000, and AFMSS) the District will make an initial determination as to the validity of the PAQ. This determination includes whether the lease is within its stated  primary term (initial lease terms PAQ explicitly states need to complied with to be valid) or secondary term (extension of lease triggered by lease terms in lease and/or state law), and what terms of the PAQ dictate amount of proceeds due to the United State as the lessor.  Any additional documentation or production data to make these determinations may be requested from lessee.  During the lease verification process, the District may require a legal interpretation as to the validity and terms of the lease. In this instance, the District should contact the appropriate Field Solicitor's Office for further guidance, copying the ESO Litigation Coordinator.

1.2. Recording PAQ

Once verified, the District will contact ESQ Accounting Division to request a serial number be generated. This request will be made via an email that includes the following information: (1) Operator/Lessee Name and Address; (2) Case Type; (3) Legal Land Description; (4) Acreage; (5) County; and (6) State.

Once a serial number is created, the District will create a LR2000 serial register page (SRP) in accordance with the instructions found in the attached PAQ Serialization Checklist. As further explained below, the SRP will serve as the Office of Natural Resources Revenues' (ONRR) source of information for calculating and collecting revenues for the PAQ. Therefore, the SRP should contain all information presented in the below PAQ Accounting section of this IM (see attached Sample SRP).

If PAQ is producing, a first production memorandum will be created by the District and included in the case file and annotated on all applicable databases.

1.3. Notifications

When a PAQ has been recorded, the District will send notification to the lessee of record, SMA, and the state office. Lessee notification will include instructions on how to make required payments to ONRR (see also attached Serialization Checklist). This notification will be mailed by the district via certified mail, or by equivalent delivery service with available tracking and delivery verification.

The District should send a copy of the newly created PAQ case file to ESQ and SMA along with the notification. Designated ESQ staff will request that Accounts creates a serialized and barcoded folder for the PAQ, and update said folder with the all documents accompanying the PAQ recordation notice.

2.  PAQ Accounting

Accounting of a PAQ requires close coordination between Districts, ESQ, and ONRR. Generally, ONRR must calculate the royalties that are due on a PAQ by hand, as the agency's automated calculation system does not recognize royalties and other rates that are not the same as the standard federal royalty and rental.

2.1. BLM and Solicitor Review of Payment Terms

The terms controlling the royalties and other payments due on a PAQ may not be easily determined. In the event that the District is unable to determine these amounts, the appropriate Field Solicitor's Office should be consulted to make this determination, with the ESQ Litigation Coordinator being copied. A request for a Solicitor determination of a PAQ's payment terms should be put in writing, and be forwarded to the proper Solicitor with all documentation that may be required to formulate an opinion (i.e., the PAQ's leasing document, United States acquisition instruments for the mineral estate encumbered by the PAQ, etc.). This request for Solicitor advice should be made in accordance with Eastern States legal consultation guidance, including copying all pertinent state office employees on requesting communications.

2.2 PAQ Accounting Advice

After a PAQ has been recorded, an accounting advice will be created by the District and transmitted to ONRR.

2.3 LR2000

During the creation of the SRP for a PAQ, the District will fill out the remarks section with the previously determined payment terms of the lease as shown in the attached PAQ SRP Example. As with standard federal leases, creation of a PAQ's SRP should be carefully reviewed for aspects of the SRP that will be relied upon or have an effect on ONRR's accounting and collection of PAQ payments, as discussed above.

2.4. Collecting Unpaid Royalties

The District will work with ONRR, and the DOI OIG Energy Investigation Unit and/or the BLM Special Investigation Group where appropriate, when there is evidence that federal minerals encumbered by a PAQ are being produced, but royalty payment is not being paid. Where the PAQ has not previously been recorded, the District will first accomplish serialization and accounting prior to contacting outside agencies for assistance.

3. PAQ Transfer and Assignment

3.1. Notification to BLM of PAQ Transfer or Sale

The custodian of records for a PAQ is dictated by the filing statutes of the state where the PAQ is located. Notifying BLM ES of transfer or sale is not required outside of the Lessee's requirement to notify a Lessor under state law. However, the above mentioned notice to lessee of PAQ recordation will request that the District be notified of any transfer or sale of the PAQ.

3.2. Processing PAQ Transfer or Sale

In the event a transfer is filed, BLM ES will process said transfer in a manner consistent with the attached PAQ Transfer/Assignment Checklist, and this checklist should be included in the case file upon completion. Following receipt of a transfer or assignment, BLM ES will send the new lessee the attached PAQ Lessee Transfer Notice.

4. PAQ Operations

Management of a PAQ is the responsibility of the oil and gas commission, natural resource department, environmental protection agency, wildlife and/or any other state agency as dictated under state law and regulations. Therefore, notification of BLM ES of any potential operations is outside any requirements of Lessee notification to Lessor established under state law.  However, the PAQ Lessee Notification Letter will request that the Lessee copy the District on any operational orders or permits request to the applicable state entity. Furthermore, the PAQ Lessee may have a greater duty of operation coordination with the SMA as the surface owner than BLM ES as the Lessor. Therefore, the District should work closely with the appropriate SMA on any federal surface disturbance resulting from PAQ operations being made.

The District should work with the applicable Field Solicitor's Office to determine the parameters of operational input that may be available to pertinent federal entities under the terms of a contract and state law. Determinations as to rights under state law should be requested from the applicable Field Solicitor's Office as soon as possible for those states where PAQs are known to exist as prioritized by the District.

5. PAQ Closure

A closure will result from a PAQ no longer being valid under its own terms and/or state law, and will be processed by the District in accordance with the attached PAQ Closure Checklist, and the procedures established below.

5.1. Closure Notices

If a PAQ is being terminated, a sixty-day produce or plug letter should be sent to the PAQ lessee of record such as the attached Sample PAQ Lessee Plug or Abandon Notice. If the produce or plug letter is not acted upon by lessee of record, the District should move forward with executing a closure notice (see attached Sample PAQ Lessee Closure Notice), as well as with accomplishing any other processes or requirements established by state law for a lessor to terminate an oil and gas lease as determined by the below consultation.

5.2. Solicitor Consultation

Almost all states where PAQs are located require notice for closing out a previously producing lease based on cessation of production. In some instances, state law may require a court order to terminate a PAQ, especially in situations where the PAQ is still producing, but BLM seeks to cancel the lease for failure of lessee to abide by the lease terms. The District will need to consult the applicable Field Solicitor's Office to ensure all state requirements are met either programmatically or on a case-by-case basis.

6. PAQ Amendment

6. 1. Addendums

As PAQs are administered in accordance with state law, a PAQ lessee of record may agree to an amendment of the terms of the underlying lease if allowed under the law of the state.  For example, under the laws of the State of Ohio, oil and gas leases are not considered to inherently have a right to "pool" the lease (i.e. combine the lease with other leases to meet the minimum acreage requirements of state spacing requirements for development). Therefore, BLM ES and the lessee may mutually agree to add a pooling clause to the PAQ in exchange for the lessee agreeing to the administration of the lease under the general federal lease requirements, including those found in 43 CFR Part 3100. If the District determines that an addendum to a PAQ is in the United States best interest, Solicitor approval in accordance with BLM ES of said addendum must be received prior to execution.

Timeframe: These procedures are effective immediately.

Budget Impact: None.

Background: The United States often acquires mineral rights when acquiring surface acreage as a result of donation, purchase, take, or trade. Occasionally, these minerals are subject to an existing mineral lease, which the United States must acknowledge and honor as long as the lease is valid under its own terms. The terms of a PAQ are based on the original lease. Unless modified, PAQs are governed by civil laws and not Federal well and leasing laws, Federal Royalties, Federal reporting rules, Federal reporting regulations, or Federal environmental regulations (NEPA).  The Federal role as lessor to these PAQs is to confirm that the original lease terms and any royalty and production obligations are met.

Manual/Handbook Sections Affected: The procedures and guidance contained in this IM do not contradict or modify .any manual or handbook

Coordination: This IM was coordinated between the BLM Eastern States Office, the Southeastern States District, the Northeastern States District, Office of Natural Resource Revenue, the Office of the Solicitor, and BLM Washington Office-310.

Contact: For questions, please contact Justin Katusak via email at jkatusak@ blm.gov, or via phone at (202)-912-7727.

Signed by: Karen Mouritsen, Eastern States Director

Attachments:

1. 1983 Solicitor Memorandum
2. PAQ Serialization Checklist
3. Sample PAQ Serialization Lessee Notice
4. PAQ Transfer Checklist
5. Sample PAQ Transfer Lessee Notice
6. Sample Lessee PAQ Plug/Abandon Notice
7. PAQ Closure Checklist
8. Sample PAQ Closure Lessee Decision