Mineral Leasing Act (1920) (Major Acts of Congress)
Brian E. Gray
The Mineral Leasing Act (41 Stat. 437) is one of the cornerstones of the reservation era in federal public lands policy. During this era, Congress recognized that certain public lands should be withdrawn from entry under the Homestead Act, the General Mining Law, and other statues authorizing the transfer of the federal public domain to private ownership. Instead, federal reserved lands would be retained by the United States for managed economic uses and preservation of certain natural resources in service of the national interest. The Mineral Leasing Act followed the Organic Act of 1897, which created the National Forest System, and the National Park Service Act of 1916.
At the beginning of the twentieth century, the vast oil reserves of the American West rested largely unknown and undeveloped. Although California was the fifth-largest petroleum producing state, the region as a whole contributed only about 9 percent of the nation's oil supplies. From 1900 to 1910, however, the petroleum industry, dominated by giants such as Standard Oil, Union Oil, Prairie Oil & Gas, Phillips Petroleum, and the Southern Pacific and Santa Fe Railroads, shifted its new exploration and drilling to the western lands. By 1911, the year the Supreme Court upheld the breakup of the Standard Oil Trust, the West's share of United States oil production had grown to 72 percent.
Most of the western drilling was on private or state lands in Texas, Oklahoma, Kansas, and California. As the demand for fuel oil rose, the petroleum companies turned to the federal public lands, particularly those in the northern Great Plains and California, for suitable crude oil. Deposits in the Los Angeles basin and San Joaquin Valley were highly valued, because the crude oil there was rich in high-octane hydrocarbons, which made it well suited for refinement into gasoline.
The petroleum deposits of the federal public lands were especially attractive to America's corporate oil barons for two reasons. First, the cost of exploration and extraction generally would be less than for the deposits located in the Gulf of Mexico or off the California coast. Second, Congress had confirmed in the Oil Placer Act of 1897 that all public lands "containing petroleum or other mineral oils and chiefly valuable therefore" were "free and open to occupation, exploration, and purchase" under the General Mining Law of 1872. The Mining Act authorized all citizens to enter onto the public lands to prospect for minerals (such as gold, silver, copper, and lead, as well as oil and other fossil fuels), and it allowed the discoverer to stake multiple claims both to the minerals and to their surrounding lands. The only legal requirements for the establishment of a claim were that the mine be capable of producing minerals in "valuable quantities" and that the miner spend at least $100 each year on labor or capital improvements at the site. Upon satisfaction of these minimal conditions, the locator of the minerals could extract and market the minerals without royalty or other recompense to the United States. After expenditure of $500 of labor or capital investment, the miner also could purchase the land adjacent to the minerals for five dollars per acre.
The advantages of the open-access policy were offset by two other realities. From the miner's perspective, free access encouraged competition for the mineral deposits and rewarded those who first located the minerals. The miner's custom of "first-in-time, first-in-right" meant that interests other than the big American oil companies could stake claims to the petroleum deposits of the western public lands. Indeed, in 1913 a subsidiary of Royal Dutch Shell claimed thousands of acres of rich oil fields in California's San Joaquin Valley and began pumping crude oil 200 miles north to the Shell refinery on San Francisco Bay.
An even greater flaw in the open-access policy had broader social implications.
CHANGING THE POLICY: THE PICKETT ACT
On September 17, 1909, the director of the U.S. Geological Survey reported to the secretary of the interior that companies acting under the General Mining Law were claiming the petroleum deposits of the public lands in California at such a rate that it would "be impossible for the people of the United States to continue ownership of oil lands for more than a few months. After that, the Government will be obliged to repurchase the very oil that it has practically given away." In view of the Navy's rapidly increasing demand for fuel oil, he continued, "there would appear to be an immediate necessity for assuring the conservation of a proper supply of petroleum for the Government's own use." The director concluded that "pending the enactment of adequate legislation on this subject, the filing of claims to oil lands in the State of California should be suspended."
Secretary of the Interior Richard A. Ballinger forwarded the report to President William Howard Taft, who agreed that the open-access policy of the General Mining Law threatened the national interest in maintaining strategic petroleum reserves. On September 27, 1909, the president issued a proclamation that temporarily withdrew from entry, location, and disposal 3,041,000 acres of oil-bearing lands in California and Wyoming. Uncertain of his constitutional authority to reserve federal lands from public use, Taft asked Congress to ratify his decision. Congress responded the following year by enacting the Pickett Act, which declared that the "President may, at any time in his discretion, temporarily withdraw from settlement, location, sale or entry any of the public lands of the United States ... and reserve the same for ... purposes to be
Prospectors in Wyoming entered an area of the public lands in Wyoming that were withdrawn by President Taft's proclamation, bored a well, and discovered oil. They assigned their interest in the oil and land to Midwest Oil Company, which extracted about 50,000 barrels. Upon learning of the illegal drilling, the United States sued to recover the land and for an accounting of the oil that had already been pumped out. Midwest defended itself on the grounds that the president's withdrawal of the land from entry and location under the General Mining Law was unconstitutional.
In United States v. Midwest Oil Co. (1915), the U.S. Supreme Court affirmed the president's constitutional power unilaterally to withdraw public land from entry, use, or settlement. Writing for a seven-member majority, Justice Joseph Rucker Lamar asserted that the Court "need not consider whether, as an original question, the President could have withdrawn from private acquisition what Congress had made free and open to occupation and purchase." Rather, he observed that a succession of presidents over the past eighty years had withdrawn land from the public domain and had done so without express statutory authority.
Justice Lamar cited ninety-nine executive orders that created or enlarged Native American reservations, 109 that established or enlarged military reservations, and forty-four that created bird reserves:
When it appeared that the public interest would be served by withdrawing or reserving parts of the public domain, nothing was more natural than to retain what the Government already owned. And in making such orders, which were thus useful to the public, no private interest was injured. For prior to the initiation of some right given by law the citizen had no ... private right in land which was the property of the people.
Justice Lamar acknowledged the argument that "while these facts and rulings prove a usage they do not establish its validity." The Court concluded, however, that "government is a practical affair intended for practical men" and that "lawmakers and citizens naturally adjust themselves to any long-continued action of the Executive Department."
President Taft's withdrawal of the petroleum reserves in California and Wyoming focused public attention on the importance of safeguarding the nation's oil supplies. At the same time, the Supreme Court's confirmation of the government's power to reserve minerals from free entry and exploitation under the General Mining Law laid the constitutional foundation for a permanent reservation of petroleum-bearing lands.
MAJOR FEATURES OF THE ACT
Following more than ten years of debate, Congress enacted the Mineral Leasing Act, which President Woodrow Wilson signed into law on February 25, 1920. The Mineral Leasing Act applies to all deposits of oil, natural gas, oil shale, coal, bituminous rock, and other fossil fuels, as well as to fertilizers such as phosphate, sodium, and potassium. (The act also reserves all helium extracted from natural gas to the United States.) For these minerals, the act changed the open-access and free-extraction policies applicable to hardrock minerals.
Although the specific terms of the law vary depending on the type of mineral, the principal features of the Mineral Leasing Act are:
- Permission to enter the public lands to explore for minerals must be obtained from the government. There is no right to prospect.
- The United States grants the authority to drill and extract minerals by lease. Coal and oil shale leases usually are for twenty years, while oil and natural gas leases generally are limited to ten-year terms.
- The government has the power to manage the exploitation of leasable minerals and may place conditions on leases to ensure that exploration, drilling, and reclamation of the lands on which the mineral development occurs are consistent with land- and resource-management plans and to protect the environment.
- The United States receives compensation from the lessee (the party that obtains a lease) for the privilege of extracting minerals from the federal public lands. In recent years, the royalty on coal is 12.5 percent of gross revenues. Royalties for oil and natural gas extraction range from 12.5 percent to 25 percent of gross receipts.
The Bureau of Land Management, an agency of the U.S. Department of the Interior, is the principal administrator of the Mineral Leasing Act. The act applies to approximately 564 million acres of federal lands (or about 28 percent of the land mass of the United States). Approximately 37 percent of the nation's coal, about 11 percent of its natural gas, and 5 percent of domestic oil production comes from the public lands. The states in which the minerals are extracted share approximately half of the royalties paid by lessees.
The Mineral Leasing Act significantly influenced the mineral exploration and leasing provisions of the Outer Continental Shelf Lands Act of 1953 (and its 1978 amendment), as well as the Geothermal Steam Act of 1970. The Mineral Leasing Act remains one of the most important statutes governing the federal public lands.
See also: NATIONAL PARK SERVICE ACT; OUTER CONTINENTAL SHELF LANDS ACT; YELLOWSTONE NATIONAL PARK ACT.
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