LEASING OF ONSHORE STATE-OWNED OIL AND GAS RIGHTS
The purpose of these rules is to provide a uniform system for leasing onshore oil and gas rights to individuals, corporations, and public bodies to encourage exploration and extraction of the state-owned oil and gas resources. These rules are promulgated and will be administered by the Division of State Lands under the authorities of ORS 273 .551 et seq. and 273.775 et seq.
(1) "Anniversary Date" means the annual anniversary of the month and day specified in the first paragraph of the lease agreement.
(2) "Cash Bonus" means a per-acre sum of cash offered by a bidder as consideration for the execution of an oil and gas lease. A cash bonus is neither rent nor royalty but in addition thereto.
(3) "Director" means the Director of the Division of State Lands or his or her designee.
(4) "Division" means the Division of State Lands.
(5) "Environmental Impact Assessment" means an environmental analysis prepared by the lessee on a form provided by the Division describing how the lessee's proposed activity will affect the natural resources including fish, wildlife, water, recreational, scenic and other resources of the leased lands; and describing the actions lessee will take to minimize these impacts.
(6) "Geophysical Survey" means the investigation of subsurface geological conditions by any method, including but not limited to the following: seismic, gravity, magnetics, electric and geochemical sampling.
(7) "Long Ton" means an amount equal to 2,240 pounds.
(8) "Negotiated Lease" means a lease varying from the standard form of lease, negotiated for lease parcels of less than the minimum 40 acres in size, pursuant to the requirements of OAR 141-070-0050(6).
(9) "Operations Plans" means the written plan of operations for oil and gas production and associated activities required by the State Department of Geology and Mineral Industries in conjunction with obtaining a drilling permit.
(10) "Surface Entry" means entry upon the surface of the leased premises to drill, mine, produce, lay pipelines or otherwise disturb the surface of the property. As used herein, a surface entry permit is not required to conduct geophysical or other nondestructive survey techniques such as geological mapping of the surface.
(11) "Shut in Well" means a well that is capable of producing oil and gas but production from the well has been temporarily halted.
(1) To qualify for a State of Oregon geophysical permit or oil and gas lease, an applicant must be:
(a) A citizen of the United States of legal age;
(b) A partnership conducting business under an assumed business name or a corporation registered with the State Corporation Division; or
(c) A domestic governmental body.
(2) Members of the State Land Board and employees of the Division of State Lands shall not take or hold leasehold interests in state-owned oil and gas rights.
Geophysical Survey Permit
A geophysical survey permit is required from the Division to explore state-owned land for potential oil and gas resources. A permit may be requested in writing from the Division's mineral leasing manager and will be issued, if approved, on a form approved by the Director. Each application for a geophysical survey permit shall be accompanied by a $50.00 processing fee:
(1) The geophysical survey permit allows surface entry to explore the subsurface by techniques acceptable to the Division.
(2) Permission to conduct surveys across state leased lands must be obtained from state's lessee prior to surface entry.
(3) The geophysical survey permit does not grant any rights to extract oil and gas nor grant any preference rights to an oil and gas lease.
(4) The Director may require the permittee to submit a post-exploration map to the Division identifying the exact location of all tests conducted.
The state makes no representation or warranty whatsoever with respect to its title to any lands offered for lease.
General Leasing Conditions
(1) The Division of State Lands may conduct an auction of oil and gas rights upon receipt of applications nominating state-owned lands. The minimum acreage required for an auction to be conducted shall be determined by the Director. The Division may also nominate state-owned lands for auction.
(2) Nomination of oil and gas rights for auction shall be submitted on an application form provided by the Division pursuant to OAR 141-070-0060 below and will be considered an offer to lease and pay the minimum advance rental amounts for all lands nominated.
(3) State-owned oil and gas rights may be leased by oral bid auction or sealed bid auction, at the discretion of the Director. Under special circumstances, certain oil and gas rights may be leased through negotiation without an auction. (See section (6) of this rule.)
(4) All applications shall be presumed to be requests to lease state lands by the oral lease auction procedure. If the Director elects to lease the nominated lands by sealed bid procedure, all processing fees shall be refunded if applicants do not wish to participate.
(5) The legal descriptions of all lands nominated for auction shall be forwarded to affected government agencies, surface rights owners and other interested parties for review and comment. This notice is given pursuant to the Land Conservation and Development Commission governmental action coordination plan.
(6) The Director will determine which lands are available for auction or lease following consideration of comments received from government agencies and interested parties. Prior to holding an auction or offering parcels for lease, the Director may hold a public hearing to obtain public input on the desirability of leasing state lands for oil and gas production. The hearing will be an informational hearing only, to aid the Division in its leasing decision.
(7) The Division will not auction oil and gas leases for tracts of land that contain less than 40 acres, except in the case of isolated parcels, or where the Division determines that the public interest will best be served by waiving the minimum acreage requirement.
(8) A written request for a negotiated lease of less than 40 acres of state lands without an auction will be considered if the parcel is within a designated drilling unit and a drilling permit has been issued or other sufficient evidence is provided to assure that drilling for oil or gas will be accomplished within a reasonable period of time. The terms of any negotiated lease will include a royalty of not more than 3/8 and an advance rental bonus based on the lease term and parcel size.
All requests to lease state-owned oil and gas rights shall be submitted on application forms provided by the Division.
(1) The completed application form must be accompanied by a $50 per parcel processing fee payable by cash or check to the Division of State lands.
(2) Each application shall be deemed an offer to lease the oil and gas rights to the lands described therein, including a commitment to pay one year's annual rental in advance for all lands nominated by the applicant if no other bids are received on the subject lands.
(3) Lands included in a lease application will be described as parcels, with each parcel comprised of not less than 40 acres nor more than a platted section of approximately 640 acres except as allowed in OAR 141-070-0050(7) and (8) above.
(4) There is no limitation on the total number of parcels that an applicant may nominate for auction.
The Director may reject any application that is not in compliance with these rules or that is not in the public interest. If rejected, all fees shall be returned to applicant.
When the Director determines that sufficient lands have been nominated as described in OAR 141-070-0050, an auction date will be established and details pertaining thereto will be announced to all interested parties as follows:
(1) The Division will maintain a mailing list consisting of oil and gas lessees, previous bidders, parties who have requested inclusion on the list, affected state agencies, other governmental bodies and other interested parties as determined by the Division. When arrangements are finalized, a notice of auction, including date, time, place, minimum bid amount, legal description of the offered lands, and the type of auction, will be mailed to those on the above described list.
(2) The Division will give at least one public notice of each auction by publication in a newspaper of general circulation in the county in which the lands are located, at least 30 days prior to the auction date. The published notice will include the date, time, place, minimum bid amount, legal description of the offered lands, and the type of auction.
(3) All parties on the mailing list will be notified if the auction is cancelled or postponed.
The procedure for auctioning state oil and gas leases shall be either by sealed bid or oral bid. The selection of auction procedure shall be at the discretion of the Director based on the public interest. Bids shall include the minimum bid amounts set by the Director plus any additional per-acre cash bonus amount the applicant desires:
(1) Oral Bid Procedure. The minimum starting bid amount per acre, minimum raise in bid per acre, and bidding unit parcels will be set forth in the notice of auction:
(a) The highest qualified bidder shall pay one year's advance annual rental at the close of the auction and any cash bonus bid within five working days after the close of the auction. Upon compliance with these rules and applicable statutes, the highest qualified bidder shall be awarded the lease;
(b) If no bids are received at the auction, the Division may award the lease to the original nominating applicant by accepting that applicant's offer pursuant to OAR 141-070-0060(2);
(c) The Division reserves the right to reject any and all bids on any tract offered for lease.
(2) Sealed Bid Procedure. The minimum acceptable bid will be established by the Director and will be announced in accordance with OAR 141-070-0080:
(a) The number of acres within each bidding unit shall be established by the Director;
(b) Each bidder shall submit a completed bid form provided by the Division together with a check in an amount not less than ten percent of the total bid amount per bidding unit. All bids received by the deadline stated in the auction notice shall be opened and announced at the specified place, date, and hour;
(c) The Director shall award a lease to the highest qualified bidder for each bidding unit within 30 days of the bid opening. The successful bidder shall pay the balance of the cash bonus bid amount and the first year's rental within ten working days of the date the Director notifies the successful bidder by certified mail.
Lease Conditions and Requirements
All oil and gas leases shall be on a form approved by the Director of the Division of State Lands. The oil and gas lease form contains specific contractual rights and obligations including, but not limited to, the following:
(1) The lease agreement allows only limited right of surface entry to the leased lands. After the Environmental Impact Assessment has been approved by the Division and the Operations Plan has been approved by the Department of Geology an Mineral Industries, and all necessary bonds, insurance, permits, and approvals have been received, pursuant to OAR 141-070-0110 below, the Division may issue a surface entry permit to accomplish the purpose of the lease.
(2) The lessee shall be responsible for all damages resulting from its operations on the leased lands.
Surface Entry Permit
When the State owns the surface as well as the oil and gas rights, no road construction, site preparation or drilling for oil or gas shall take place on the surface of the leased premises prior to the issuance of a surface entry permit. When the state owns oil and gas rights but not surface, the lessee must pursue obtaining surface entry in the manner provided by law for exercising access to severed estate mineral rights. The Division may issue a surface entry permit upon receipt and approval of the following:
(1) An Operations Plan as required by the Department of Geology and Mineral Industries in conjunction with obtaining a drilling permit.
(2) A payment, production and performance bond or bonds in the amount stipulated in the lease agreement in addition to any performance bond that may be required by the Department of Geology and Mineral Industries in connection with issuance of an oil and gas drilling permit.
(3) A certificate of insurance for not less than $1,000,000 combined single limit per occurrence showing that the lessee is insured for personal injury, property damage to third persons and liability under the terms of the lease agreement. The insurance amount shall be for each occurrence and shall name the State of Oregon as an additional insured.
(4) An Environmental Impact Assessment completed by the lessee on a form provided by the Division. The environmental assessment shall include but will not be limited to adverse effects on the human and natural resources of the area, including scenic, recreational, public health, and plant and animal resources. It will also require a description of procedures the lessee will take to mitigate said impacts. The approval or disapproval of the Environmental Impact Assessment will be determined by the Division within 90 days of receipt of the completed form.
(5) Permits as required by governmental bodies.
(6) A designated agent, if lessee is a nonresident. Lessee shall designate, in writing, an Oregon resident as a designated agent upon whom may be served written notices or orders respecting the lease agreement.
(7) Operator. Any operator appointed by the lessee shall be jointly responsible for the faithful performance of all covenants and obligations of the lease.
Lessee shall pay to the state annually in advance, the following rental amounts per acre or fraction of an acre per year:
(1) Annual Rental -- The amount of $1 per acre or fraction of an acre payable in advance on an annual basis during the primary ten-year lease term and any extended term of the lease.
(2) Delayed Rental -- The amount of $1 per acre or fraction of an acre in addition to the annual rental to defer the lease agreement drilling requirement. Delayed rental is payable on or before the 5th through the 9th anniversary dates of the primary lease term unless the drilling requirements are satisfied or the lease agreement is terminated.
(3) The lease shall automatically terminate if all annual and delayed rental payments required by the lease are not received by the Division on or before the anniversary date of the lease.
The minimum royalties on all leases shall be:
(1) Oil -- One-eighth of the market value at well head.
(2) Gas -- One-eighth of the proceeds from sale of gas as calculated at well head.
(3) Sulphur -- One dollar per long ton.
(4) At the discretion of the Director, royalties for negotiated leases and for leases within six miles of a shut in or producing oil and gas well may be in excess of the minimum royalty but not to exceed 3/8 of the value as described under sections (1) and (2) of this rule.
(5) The lessee shall furnish monthly royalty statements specifying the total production, sales price, taxes, and the state's share of production attributable to each leased parcel of state land.
(6) Any person authorized by the state may examine all books and records pertaining to oil and gas resources taken from the leased lands.
(7) The state shall have the right to measure, sample and/or witness the removal of all substances from the leased lands at any reasonable time.
Assignment of Lease
The assignment of a divided or undivided lease interest, in whole or in part, may only be accomplished by compliance with the following:
(1) Divided Interests. All request for assignment of divided interests must be submitted on forms provided by the Division and are subject to approval by the State Land Board. Assignment of a separate portion of the lease shall release the assignor from further lease obligations only with respect to the assigned lands.
(2) Undivided Interests. All request for assignment of undivided lease interests must be submitted on forms provided by the Division and are subject to approval by the Director. Undivided assignment of lease interests does not segregate the lease, and the original lessee and assignee shall both be responsible for the performance of all duties and obligations of the lease agreement.
(3) Fee. The processing fee shall be $50 for each assignment. All assignment forms shall be submitted in duplicate.
Whether or not the state owns the surface, no production of oil, gas, and the constituents thereof shall be commenced until the lessee has submitted, and the Director has approved, an Operations Plan and an Environmental Impact Assessment, or an amendment of a previously approved impact assessment.
At the expiration of the lease or upon sooner termination, the lessee shall execute and deliver to the state a release or a recorded quitclaim of the leased premises if the original lease was recorded.
Leases Issued Prior to the Effective Date of These Rules
All upland oil and gas lease agreements issued prior to the effective date of these administrative rules remain subject to the provisions of OAR 141-072-0205 et seq., under Division 72 of Chapter 141, Division of State Lands.