Private Acquired Lease Administration

PAQs are private oil and gas leases that have been acquired by federal surface management agencies (SMAs), such as the U.S. Forest Service or the U.S. Army Corps of Engineers, and that have been transferred to the BLM for minerals management. PAQs result from federal SMA acquisitions of surface and/or mineral estates that are subject to pre-existing private oil and gas leases. The way BLM manages PAQs differs significantly from the way it manages federally issued leases. Because PAQs are not issued under the Mineral Leasing Act of 1920, as amended and supplemented (30 U.S.C. 181 et seq.), or under other federal or Indian minerals statutes, they are not subject to the laws and regulations governing federally issued leases.

With PAQs, the BLM steps into the shoes of the original private lessor and, as lessor, has rights and obligations granted either explicitly or implicitly by the leases themselves, as well as rights and obligations that are inherent in the lessor-lessee relationship under the laws of the state in which the PAQ is located. The BLM’s role, in managing the United States’ interests as lessor, is to ensure that the original lease terms and any royalty and production obligations are met.

General Management

PAQs present unique management challenges because the BLM has administrative responsibilities, but limited authority. Lessee conduct under a PAQ is guided by the terms and conditions of the lease, applicable state laws, and applicable federal laws, such as the Endangered Species Act. The federal laws and regulations that BLM would normally use to regulate federal onshore oil and gas development do not apply to PAQs, unless a PAQ is amended by mutual agreement. The original leases, some dating back to the 1880s, may be difficult to analyze because they are sometimes hand-written or of such poor quality that they are illegible. Some PAQs do not conform to the extent of the parcels that the federal government has acquired. It is important for the BLM to ensure that it obtains a record of the boundaries of each PAQ. Additional documentation or production data may be needed from the lessee, or the SMA that acquired the lease, when the case is established in BLM’s automated records. When appropriate, an office may need to contact the Solicitor’s Office when the meaning and validity of lease terms are unclear and need legal interpretation. When PAQs are transferred to the BLM, refer to H-3101-1, Issuance of Leases (Rel. 3-308, 2/2/1996), for establishment of the case for the BLM and the Office of Natural Resources Revenue (ONRR). For additional information on the general management of PAQs, refer to H-3101-1, Issuance of Leases, Appendix 1, Solicitor’s Memorandum on Federal Jurisdiction over Acquired Private Leases.

Royalty and Payment of Terms

At times, the lease terms that establish the royalties or other payments due on a PAQ may be difficult to determine. If an office is unable to determine these terms, consult with the appropriate Solicitor’s Office to make this determination. All documentation that may be necessary to formulate an opinion (i.e., the PAQ leasing document, the acquisition instruments from the mineral estate encumbered by the PAQ, etc.) should be forwarded to the appropriate Solicitor’s Office.

Accounting for lease production and royalties from a PAQ may require coordination between the BLM and ONRR. When there is evidence that federal minerals encumbered by a PAQ are being produced and royalty payments are not being made to ONRR, contact the DOI Office of Inspector General Energy Investigation Unit at 800-424-5081 or through its website.

PAQ Assignments and Transfers

The BLM cannot depend upon the requirements under 43 CFR Part 3100 for a PAQ lessee to notify the BLM of a change in lease interest. Notifying the BLM of a lessee’s intended sale or transfer of the lease interest is not required outside of the lessee’s requirement to notify a lessor under state law or lease terms. The BLM will request to be notified of any assignment or transfer in the initial notice to lessee after serialization.

Because PAQs are not subject to the laws and regulations governing federally issued leases, lessees and operators are not subject to the filing fee schedule nor are they required to use the federal forms for assignments, transfers, or sundries to change an operator. Although not required, the PAQ lessee/operator may elect to submit the BLM forms to satisfy the state and local filing requirements. Upon receipt of a completed transfer or assignment, the BLM will send the new lessee a notice recognizing the transfer and including requests similar to those made in the initial notification letter. In addition, the BLM will update its automated records and send an accounting advice notification to ONRR so that it can also recognize the change in lease interest.

PAQ Amendments

A PAQ lessee of record may agree to an amendment of the lease terms if allowed under the laws of the state. For example, in the state of Ohio, oil and gas lessees are not considered to be inherently entitled to “pooling” of leases (i.e., combining a lease with other leases to meet the minimum acreage requirements of state spacing requirements for development). Therefore, the BLM 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 leasing requirements, including those found in 43 CFR Part 3100. Whi­le this type of amendment would not change the basic lease terms (e.g., fiscal terms or provisions for termination of the lease), it would allow the BLM to manage the lease under the regulations governing federally issued leases (e.g., demand a bond to cover the existing operations and issue enforcement actions).

PAQ Operations

Unless the lease specifically empowers the lessor, management of operations on a PAQ is the responsibility of the state oil and gas regulatory agencies. The BLM does not usually have authority under the PAQ or any federal law to conduct inspections on the PAQ or issue enforcement actions under the federal oil and gas regulations related to the PAQ. Additionally, state laws often do not require the lessee or operator to notify the BLM of any potential operations. However, this does not mean BLM cannot supervise the leases meaningfully. The initial lessee notification letter will request that the lessee provide the BLM with a copy of any operational orders, permit approvals, or permit requests submitted to the applicable state agency. Additional supervision is also entrusted to the SMA, through regulations regarding surface use. Therefore, the BLM should work closely with the appropriate SMA regarding any federal surface disturbance resulting from PAQ operations. The BLM should work with the appropriate Solicitor’s Office to determine parameters of operational input available to pertinent Federal entities under lease terms and state law.

PAQ Closure

PAQs can expire, terminate, or otherwise become invalid under their own terms or under state law when lease conditions have been satisfied, which is generally when wells cease oil and gas production. The BLM should be proactive and assess their PAQs to see which ones can be closed. This frees the minerals from encumbrances so they can be available for competitive leasing under federal regulations. If the PAQ should expire, terminate, or otherwise become invalid, the BLM should send a notice to the lessee of record to meet any requirements under state law. If any action described in the notice is not acted upon by the lessee of record, the BLM office should move forward with executing a closure notice and accomplishing any other processes or requirements established by state law for a lessor to terminate an oil and gas lease.

In some cases, state law may require a court order to terminate a PAQ, especially in situations where the PAQ is still producing, but the BLM may seek to terminate or cancel the lease if the lessee fails to abide by the PAQ lease terms. Send copies of any PAQ notices to the SMA, ONRR, and the appropriate BLM state/field office. In addition, if a PAQ is terminated, the BLM will close the case in its automated records. The BLM office may need to consult with the appropriate Solicitor’s Office to ensure that all state requirements are met.