Prior to the 1987 amendments, only lands that were part of a “known geological structure of a producing oil and gas field” (KGS) were leased competitively; all other lands (about 95% of all leased lands) were leased non-competitively through a lottery. Today, all lands not covered by prior leases must first be offered competitively at oral auction. This system does not, however, ensure that BLM receives what it considers fair market value for leased lands. As long as the highest bid by a qualified bidder for an offered lease parcel is $2 per acre or more, BLM must accept it. BLM cannot withdraw parcels it offers simply because no bid equals or exceeds the lease’s value. If no such bid is received, BLM must offer that lease parcel non-competitively (in a hybrid system between first-come, first-served and a lottery) for a period of two years, after which an unleased parcel may again be offered only if it is first offered competitively. FOOGLRA states that lease sales must be held quarterly in states with eligible lands.
An important fact to consider is that industry generally selects the parcels in which it has some interest to be placed on the selling block: operators submit an “expression of interest” (EOI) to BLM, expressing interest in leasing particular parcels and asking BLM to offer those parcels for lease. Therefore, the fact that a lease parcel is being offered for sale in the first place is a good indication that the industry has some belief that commercially viable reserves may be present, or at least to believe that it is worth the gamble to drill a speculative wildcat well. The concerned activist, therefore, should pay close attention to BLM oil and gas lease sales. In short, these lands are being offered for leasing for a reason – otherwise they probably wouldn’t be on the selling block.
More Information on the Leasing System: