Order Code RL33014
CRS Report for Congress
Received through the CRS Web
Leasing and Permitting
for Oil and Gas Development
on Federal Public Domain Lands
July 28, 2005
Ryan J. Watson
Law Clerk
American Law Division
Congressional Research Service ˜ The Library of Congress

Leasing and Permitting for Oil and Gas Development
on Federal Public Domain Lands
Summary
A variety of statutes and agency regulations govern leasing and permitting for
oil and gas development on federal lands. This report first explains the legal
framework for oil and gas leasing and development on federal “public domain” lands,
which involves an overview of the following:
! laws and regulations affecting which public domain lands are
potentially subject to oil and gas leasing;
! development of Resource Management Plans;
! competitive and noncompetitive oil and gas leasing processes;
! terms and conditions of oil and gas leases; and
! the process surrounding applications for permits to drill.
Second, this report assesses how proposed legislation from the 109th Congress,
the Domenici-Barton Energy Policy Act of 2005 (H.R. 6), could affect oil and gas
development laws. The third section of the report analyzes selected judicial and
administrative decisions regarding what steps federal environmental laws require
agencies to take before issuing leases for coalbed methane leases. Coalbed methane
is a type of natural gas that is trapped in coal seams by water pressure.
This report was prepared by Ryan J. Watson, Law Clerk, under the general
supervision of Aaron M. Flynn, Legislative Attorney and Pamela Baldwin,
Legislative Attorney. It will be updated as developments warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Legal Framework for Oil and Gas Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Public Domain Lands Subject to Leasing for Oil and Gas Development . . . 2
Development of Resource Management Plans . . . . . . . . . . . . . . . . . . . . . . . 4
The Competitive Leasing Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Noncompetitive Leasing Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lease Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Applications for Permits to Drill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Department of the Interior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Forest Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Analysis of Proposed Legislation on Oil and Gas Leasing and Permitting . . . . . 13
Streamlining and Expediting Oil and Gas Development Processes . . . . . . 14
NEPA-Related Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Arctic National Wildlife Refuge (ANWR) . . . . . . . . . . . . . . . . . . . . . . . . . 15
Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Pennaco Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Other CBM-Related Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Leasing and Permitting for Oil and Gas
Development on Federal Public Domain
Lands
Introduction1
A variety of interrelated statutes and agency regulations govern leasing and
permitting for oil and gas development on federal lands. The national mining and
minerals policy fosters and encourages the following activities:
private enterprise in . . . the development of economically sound and stable
domestic mining, minerals, metal and mineral reclamation industries [and] the
orderly and economic development of domestic mineral resources, reserves, and
reclamation of metals and minerals to help assure satisfaction of industrial,
security and environmental needs.2
The Bureau of Land Management (BLM) — part of the U.S. Department of the
Interior — manages most federal mineral development and is largely responsible for
implementing this policy.3 BLM also manages a large amount of federal lands.
Federal land in the National Forest System (NFS) is within the jurisdiction of the
Forest Service, which is part of the U.S. Department of Agriculture. The Forest
Service plays a role in authorizing mineral development on NFS lands.
This report addresses the leasing and permitting of onshore, federal public
domain lands. “Public domain lands” encompass lands obtained “by treaty,
conquest, cession by States, and [certain] purchase[s].”4 The historical distinction
between public domain lands and other federal lands is reflected in the different
statutes that apply to the different types of lands.
This report first analyzes the legal framework for oil and gas leasing and
permitting on federal public domain lands managed by BLM and the Forest Service.
Second, this report assesses how energy legislation pending before the 109th
Congress could affect these laws. Finally, this report analyzes selected judicial and
administrative decisions regarding what steps federal environmental laws require
1 This report was prepared by Ryan J. Watson, Law Clerk, under the general supervision of
Aaron M. Flynn, Legislative Attorney and Pamela Baldwin, Legislative Attorney. It will
be updated as developments warrant.
2 30 U.S.C. § 21a (2000).
3 See Secretarial Order 3087, Dec. 2, 1982, as amended Feb. 7, 1983 (48 Fed. Reg. 8983).
4 Thomas Donaldson, The Public Domain 10 (William N. Parker ed., Johnson Reprint Corp.
1970) (1884).

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agencies to take before issuing coalbed methane leases. Coalbed methane is a type
of natural gas that is trapped in coal seams by water pressure; it is leased separately
from the coal.
This report will be updated as developments warrant.
The Legal Framework for Oil and Gas Leasing
At the dawn of the twentieth century, private entities could explore, develop,
and purchase federal public domain lands containing oil with relative ease. The
federal government permitted mineral exploration of such lands without any charge.
Oil could be developed as a placer mineral.5 Full ownership of oil lands “could be
obtained for a nominal amount.”6 However, Congress’s enactment of the Mineral
Lands Leasing Act of 1920 (MLLA) ended the private acquisition of title to federal
oil lands by authorizing the Secretary of the Interior (Secretary) to issue permits for
exploration and to lease lands containing oil and gas and other defense-related
minerals.7 The first section of this report details the legal framework for such oil and
gas leasing.
Public Domain Lands Subject to Leasing for Oil and Gas
Development

“Public domain lands” encompass lands obtained “by treaty, conquest, cession
by States, and [certain] purchase[s].”8 The historical distinction between public
domain lands and other federal lands is reflected in the different statutes that apply
to the various types of lands. The scope of this report does not encompass “acquired
lands,” which are lands “granted or sold to the United States by a State or citizen.”9
5 Oil Placer Act, ch. 216, 29 Stat. 526 (1897) (authorizing the issuance of patents that
conveyed full title to lands containing oil under Federal placer-mining laws), repealed by
Mineral Lands Leasing Act of 1920, ch. 85, 41 Stat. 4373 (1920). See also The Rocky
Mountain Mineral Law Foundation, Law of Federal Oil and Gas Leases, § 2.05 (2004).
6 See Pan Am. Petroleum & Transp. Co. v. United States, 273 U.S. 456, 486 (1927) (internal
citation omitted). See also The Rocky Mountain Mineral Law Foundation, supra note 3, §
2.05.
7 Mineral Lands Leasing Act of 1920, ch. 85, 41 Stat. 4373 (1920), codified at 30 U.S.C. §
181 et seq.
8 Donaldson, supra note 4, at 10.
9 Id. Statutory provisions addressing oil and gas development on lands not covered by this
report include the following: 25 U.S.C. § 391 et seq.(2000) (Indian lands); 30 U.S.C. §§
351-60 (acquired lands); and 43 U.S.C. § 1331 et seq. (mineral leases on submerged lands
in the Outer Continental Shelf). In addition, for information regarding U.S. offshore oil and
gas development, see CRS Report RL31521, Outer Continental Shelf Oil and Gas: Energy
Security and Other Major Issues
, by Marc Humphries.

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The MLLA authorizes the Secretary to lease oil and gas deposits and onshore
public domain lands containing oil and gas deposits, with the federal government
retaining title to the lands.10 This leasing authority applies to National Forest System
(NFS) lands that are reserved from the public domain, and to most reserved
subsurface mineral estates.11 However, it excludes numerous categories of lands such
as national parks and monuments, as well as lands in incorporated cities, towns, and
villages.12 Areas within the National Wilderness Preservation System cannot be
leased, but valid rights existing as of 1984 are preserved.13 In sum, all public lands
subject to the Secretary’s authority under MLLA “which are known or believed to
contain oil or gas deposits may be leased by the Secretary.”14
However, the Secretary of the Interior cannot issue any lease for National Forest
System lands reserved from the public domain if the Secretary of Agriculture
objects.15 In addition, the U.S. Forest Service has issued separate regulations
governing certain aspects of leasing and permitting for oil and gas development on
lands within its jurisdiction.
The Secretary is also authorized to withdraw public lands managed by BLM so
that some or all potential land uses are proscribed on those lands.16 A withdrawal
involves “withholding an area of Federal land from settlement, sale, location, or
entry, under some or all of the general land laws, for the purpose of limiting activities
under those laws in order to maintain other public values in the area or reserving the
area for a particular public purpose or program.”17 However, limitations on the
Secretary’s withdrawal authority exist.18 For example, Congress can make
withdrawals, and the Secretary may not modify or revoke a congressional
withdrawal.19
10 30 U.S.C. § 181.
11 See id.
12 Id.
13 16 U.S.C. § 1133(d)(3) (2000) (“Subject to valid rights then existing, effective January
1, 1984, the minerals in lands designated . . . as wilderness areas are withdrawn from all
forms of appropriation under the mining laws and from disposition under all laws pertaining
to mineral leasing and all amendments thereto.”).
14 30 U.S.C. § 226(a).
15 Id. § 226(h).
16 43 U.S.C. § 1714 (2000).
17 Id. § 1702(j).
18 Id. § 1714; 43 C.F.R. § 2300.0-3(a) (2004).
19 43 U.S.C. §§ 1701(a)(4), 1714(j); 43 C.F.R. § 2300.0-3(a).

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Development of Resource Management Plans
U.S. Department of the Interior
The BLM manages approximately 262 million acres of public lands under the
Federal Land Policy and Management Act of 1976 (FLPMA).20 The Secretary of the
Interior must develop and revise “land use plans” for the public lands — officially
known as Resource Management Plans (RMPs) — that consider the present and
potential future uses for public lands managed by BLM.21 These RMPs serve as the
initial determinant of which lands may be subject to leasing. All activities performed
on these lands must be consistent with the RMPs.22 Thus, an RMP must allow oil
and gas development in an area in order for it to take place there.23
The Secretary generally must apply “multiple use” and “sustained yield”
principles when developing RMPs.24 “Multiple use” principles involve judiciously
managing lands in a manner that takes into account the environmental, historical,
and natural resource values of the lands and prevents their permanent impairment.25
“Sustained yield” means maintaining “high-level annual or regular periodic output
of the various renewable resources of the public lands.”26 In addition, the Secretary
is required to provide opportunities for the public and various levels of government
to participate in the development of RMPs.27 This can include procedures such as
holding public hearings, when appropriate.28 Regulations require the preparation of
an Environmental Impact Statement (EIS) or an Environmental Assessment (EA)
when producing an RMP.29
20 P.L. No. 94-579, 90 Stat. 2744 (1976), codified at 43 U.S.C. §§ 1701-1782.
21 43 U.S.C. § 1712; 43 C.F.R. pts. 1600, 1610.
22 43 C.F.R. § 1610.5-3, 1601.0-5.
23 See id.
24 43 U.S.C. §§ 1701(a)(7), 1732(a). An exception applies in circumstances “where a tract
of such public land has been dedicated to specific uses according to any other provisions of
law [in which case] it shall be managed in accordance with such law.” 43 U.S.C. § 1732(a).
25 Id. § 1702(c).
26 Id. § 1702(h).
27 Id. § 1712(f).
28 Id.
29 See 43 C.F.R. § 1601.0-6. Development of an RMP is a “major Federal action
significantly affecting the quality of the human environment”; thus, NEPA requires the
preparation of an Environmental Impact Statement (EIS). Id.; see 42 U.S.C. § 4332(2)(C).
NEPA also requires BLM to take a “hard look” at the environmental impacts of significant
proposed actions. 42 U.S.C. § 4332(2)(C). If it is unclear whether a proposed action will
have significant environmental effects, the agency may prepare an Environmental
Assessment (EA). 40 C.F.R. § 1501.3. Based on the EA, an agency may issue a finding of
no significant impact (FONSI), thereby concluding the NEPA process, or it may determine
that preparation of an EIS is necessary. Id. § 1508.13. An EIS must address numerous
(continued...)

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The Secretary’s mandate to formulate and revise RMPs extends to all BLM-
managed public lands, no matter how they had been classified before the enactment
of FLPMA in 1976.30 The land use provisions also apply to lands that had previously
been withdrawn.31 In addition, FLPMA requires that public lands within BLM’s
jurisdiction be inventoried and identified on a continuing basis.32
U.S. Forest Service
The Forest Service also manages its lands under multiple use and sustained yield
policies.33 It develops land management plans for NFS lands by considering the
desired conditions, objectives, suitability of areas for various uses, and other
criteria.34 As with the Department of the Interior’s planning process, the laws
governing Forest Service land management and implementation require public
notification and opportunities for public participation.35 When analyzing Forest
Service lands for potential leasing, the Forest Service classifies lands into three
categories:
! (1) lands that will be “[o]pen to development subject to the terms
and conditions of the standard oil and gas lease form”
! (2) lands that will be “[o]pen to development but subject to
constraints that will require the use of lease stipulations”
! (3) lands that will be “[c]losed to leasing, distinguishing between
those areas that are being closed through exercise of management
direction, and those closed by law, regulation, etc.”36
The Forest Service must also comply with the National Environmental Policy
Act of 1969 (NEPA) when analyzing NFS lands for potential leasing.37 Once the
Forest Service has completed its analysis of which NFS lands will be available for
29 (...continued)
issues, including the environmental impact of the proposed action, alternatives to the
proposed action, and any irreversible commitments of resources which would be involved
if the proposed action takes place. 42 U.S.C. § 4332(2)(C).
30 43 U.S.C. § 1712(a).
31 Id.
32 Id. § 1711.
33 Multiple Use-Sustained Yield Act, Pub. L. No. 86-517, 74 Stat. 215 (1960), codified at
16 U.S.C. §§ 528-32.
34 16 U.S.C. § 1604; 70 Fed. Reg. 1023 (Jan. 5, 2005) (to be codified at, inter alia, 36 C.F.R.
§§ 219.5, 219.7).
35 16 U.S.C. §§ 1604(d), 1612; 36 C.F.R. § 219.9.
36 36 C.F.R. § 228.102(c).
37 16 U.S.C. § 1604(g); 36 C.F.R. § 228.102(a).

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leasing, it notifies BLM of its decisions.38 Forest Service authorization for BLM to
lease specific lands may follow.39
The Competitive Leasing Process
The MLLA authorizes both competitive and noncompetitive leasing procedures.
Usually lands go through the competitive leasing process first. When BLM posts a
list of lands available for competitive leasing, private entities may respond to this list
by submitting nominations for parcels to be auctioned.40 No unit being auctioned can
exceed 2,560 acres, except in Alaska, where the maximum unit acreage is 5,760
acres.41 In addition, each unit must be “as nearly compact as possible.”42
The Secretary must provide forty-five days notice before offering public lands
for leasing, including a thirty-day period for receiving public comments after notice
is published in the Federal Register.43 Competitive bidding must be held on a
quarterly basis in each state where public lands are available for leasing.44 The
Secretary may also authorize additional opportunities for bidding if he considers
them to be necessary.45
Once the public notice requirements have been satisfied, the public lands are
offered for competitive leasing through an oral auction.46 A national minimum
acceptable bid of $2 per acre applies to the auction.47 Any bids for less than the
national minimum bid must be rejected.48 A competitive bid constitutes a legally
binding commitment and cannot be withdrawn.49 The MLLA requires the Secretary
to accept the highest bid from a responsible qualified bidder whose bid meets or
exceeds the national minimum acceptable bid.50
The winning bidder at a competitive auction must submit the following
payments on the day of sale, unless otherwise specified: (1) the minimum bonus bid
of $2 per acre; (2) the first year’s rental payment; and (3) a $75 per parcel
38 36 C.F.R. § 228.102(d).
39 Id. § 228.102(e).
40 See 43 C.F.R. § 3120.3-1.
41 30 U.S.C. § 226(b)(1).
42 Id.
43 43 C.F.R. §§ 3120.3, 3120.4-2; see 30 U.S.C. § 226(f).
44 30 U.S.C. § 226(b)(1).
45 Id.
46 Id.
47 Id. § 226(b)(1)(B); 43 C.F.R. § 3120.1-2.
48 30 U.S.C. § 226(b)(1).
49 43 C.F.R. § 3120.5-3(a).
50 30 U.S.C. § 226(b)(1).

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administrative fee.51 Then, the balance of the bonus bid, if applicable, is due within
ten working days.52 The lease is issued within sixty days of payment of the remainder
of the bonus bid.53 The lease is also conditioned upon a royalty payment of at least
12.5% in amount or value of the production that is removed or sold from the lease,54
unless the Secretary suspends, waives, or reduces the royalty.55
The Noncompetitive Leasing Process
If no bids are received at a competitive bidding auction — or if all bids
submitted are for less than the national minimum acceptable bid — the land will be
offered for noncompetitive leasing within thirty days.56 This noncompetitive leasing
remains available for two years after the competitive bidding auction.57
The first qualified person who applies for a noncompetitive lease and pays the
$75 application fee is entitled to receive the lease without having to competitively
bid.58 All noncompetitive offers received during the first business day after the last
day of the competitive auction are considered to have been submitted simultaneously;
in such cases, a lottery determines the lease winner.59 Unlike competitive bids,
noncompetitive offers may be withdrawn by the offeror within sixty days of filing the
offer if no lease has yet been signed on the government’s behalf.60 As with
competitive leases, a noncompetitive lease is conditioned upon payment of a 12.5%
royalty in amount or value of the oil or gas removed or sold from the lease.61
Additionally, there are minimum and maximum acreage limitations for
noncompetitive leases.62 If these criteria are met, BLM will issue the lease within
sixty days of the Secretary identifying a qualified applicant.63
51 43 C.F.R. § 3120.5-2.
52 Id.
53 30 U.S.C. § 226(b)(1).
54 Id.
55 See id. § 209.
56 Id. § 226(b)(1), (c).
57 Id.; 43 C.F.R. § 3120.6.
58 30 U.S.C. § 226(c)(1).
59 43 C.F.R. § 3110.2(a).
60 Id. § 3110.6.
61 30 U.S.C. § 226(c)(1). As mentioned above, the Secretary may suspend, waive, or reduce
rentals or royalties under certain conditions. See, e.g., 30 U.S.C. § 209.
62 See 43 C.F.R. § 3110.3.
63 30 U.S.C. § 226(c)(1).

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If no application for a noncompetitive lease is submitted during the two years
that the land is available for noncompetitive leasing, the process for leasing the land
will again be a competitive oral auction.64
NEPA applies to the competitive and noncompetitive leasing processes, possibly
requiring preparation of a supplemental EIS (SEIS) or a new EA or EIS, unless
reliance on old documents is sufficient or the agency issues a FONSI.65
Lease Terms and Conditions
General Statutory Restrictions
In addition to the processes affecting where leasing can take place (discussed
above), general restrictions on leasing address who can lease and how much land they
can lease. First, public lands containing oil and gas deposits may only be leased to
U.S. citizens, associations of U.S. citizens, corporations organized under U.S. laws
or the laws of any State, and municipalities.66 In addition, citizens of a country that
denies similar privileges to U.S. citizens and corporations may not control any
interest in federal leases.67 Second, no entity is permitted to own or control oil or gas
leases (including options for such leases) under MLLA in excess of 246,080 acres in
any one State other than Alaska.68 Other aggregate acreage limitations include
limitations pertaining to options69 and to combined direct and associational/corporate
stockholder interests.70
Payment Terms: Royalties and Rentals
Leases are conditioned upon payment to the Government of a royalty of at least
12.5% in amount or value of oil or gas production that is removed or sold from the
leased land.71 Leases subject to rates in effect after December 22, 1987 must
generally pay a 12.5% royalty, but this percentage can increase if a lease is cancelled
because of late payments and then reinstated.72 The Secretary also has the power to
reduce the royalty on a noncompetitive lease if he deems it equitable to do so or if
64 30 U.S.C. § 226(c)(2)(A).
65 See Spiller v. White, 352 F.3d 235 (5th Cir. 2003); Sierra Club v. Peterson, 717 F.2d 1409
(D.C. Cir. 1983); 40 C.F.R. §§ 1502.9, 1502.20, 1504.1; 43 C.F.R. § 3101.1-3.
66 30 U.S.C. § 181.
67 Id.
68 Id. § 184(d)(1); 43 C.F.R. § 3101.2-1. For Alaska, the limit is 300,000 acres in the
northern leasing district and 300,000 acres in the southern leasing district, of which no more
than 200,000 acres may be held under options in each of the two leasing districts. 30 U.S.C.
§ 184(d); 43 C.F.R. § 3101.2-1.
69 30 U.S.C. § 184(d)(2).
70 Id. § 184(e)(1).
71 Id. § 226(b)(1).
72 See 43 C.F.R. § 3103.3-1(a).

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circumstances could “cause undue hardship or premature termination of production”
absent such a reduction.73 For oil and gas leases, the royalty must be paid in value
unless the Department of the Interior specifies that a royalty payment-in-kind is
required.74 Once the royalty has been paid, the Secretary is required to sell any
royalty oil or gas “except whenever in his judgment it is desirable to retain the same
for the use of the United States.”75
In addition to royalties, leases are conditioned upon payment of annual rentals.76
Generally, the rental rate for the first five years of a lease is $1.50 per acre per year,
with the rate increasing to $2 per acre for each additional year of the lease.77
However, there is some variation in rental amounts for certain specific categories of
lands.78 For leases issued after December 22, 1987, a minimum royalty in lieu of the
rental is due once oil or gas has been discovered on the leased land.79 The amount
of this minimum royalty is equal to the annual rental that would otherwise have been
due.80 Perhaps most important, rental payments are not due on acreage for which
royalties or minimum royalties are being paid, “except on nonproducing leases when
compensatory royalty has been assessed in which case annual rental as established
in the lease shall be due in addition to compensatory royalty.”81
The Secretary is authorized to waive, suspend, or reduce rentals and royalties
under certain conditions.82 Money received from royalties and rentals is initially paid
into the U.S. Treasury.83 Fifty percent of the funds then go to the State where the
land or mineral deposit is located.84 Forty percent of the funds are allocated into the
Reclamation Fund under the Reclamation Act of 1902 for projects that provide water
to arid Western states.85 Because Alaska is not served by the Reclamation Fund, 90
percent of the funds collected from federal leases in Alaska are allocated to the State
of Alaska.86
73 30 U.S.C. § 188(i)(1).
74 30 C.F.R. §§ 202.100, 202.150.
75 30 U.S.C. § 192.
76 Id. § 226(d).
77 Id.; 43 C.F.R. § 3103.2-2(a). The rental payment for the first year of the lease must be
included with each competitive bid or noncompetitive lease offer. 43 C.F.R. § 3103.2-1.
78 See 43 C.F.R. § 3103.2-2; see also 30 U.S.C. § 226(d).
79 43 C.F.R. § 3103.3-2(a); see also 30 U.S.C. § 226(d).
80 43 C.F.R. § 3103.3-2(a); see also 30 U.S.C. § 226(d).
81 Id. § 3103.2-2(c); see also 30 U.S.C. § 226(d).
82 See, e.g., 30 U.S.C. § 209.
83 Id. § 191(a).
84 Id.
85 Id.
86 See id.

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Length of Leases, Extensions, and Cancellations
The primary term for competitive and noncompetitive leases is ten years.87
Leases can be extended because of, inter alia, drilling operations or oil or gas
production. The existence of an approved cooperative plan can also affect
extensions.
First, a lease will be extended for two years because of drilling if three criteria
are satisfied:88
! (1) actual drilling operations began before the end of the primary
lease term;
! (2) actual drilling operations are being “diligently prosecuted”89 at
the end of the primary lease term; and
! (3) rental was timely paid.
Second, a lease that meets these criteria will be extended “so long as oil or gas
is being produced in paying quantities.”90 A lease that has been extended because of
production does not terminate simply because production stops, as long as the lessee
starts reworking or drilling operations within sixty days after production ceases and
conducts them with reasonable diligence during the non-productive period.91
Furthermore, if a lease initially extended because of drilling begins yielding oil or gas
in paying quantities during the two-year drilling extension, the lease can be extended
again.92
Finally, lessees may collectively adopt and operate under a cooperative or unit
plan for a particular area if the Secretary considers such a plan to be in the public
interest.93 All leases subject to such a plan will be extended if any of the leases
covered by the plan qualify for a drilling or production extension.94
Any MLLA lease can be cancelled or forfeited if the lessee fails to comply with
MLLA provisions, the lease’s provisions, or regulations promulgated pursuant to
87 Id. § 226(e).
88 Id.; 43 C.F.R. § 3107.1. Other regulations regarding the continuation, extension, and
renewal of leases are set forth in 43 C.F.R. § 3107.1 et seq.
89 “Actual drilling operations shall be conducted in a manner that anyone seriously looking
for oil or gas could be expected to make in that particular area, given the existing knowledge
of geologic and other pertinent facts.” 43 C.F.R. § 3107.1.
90 30 U.S.C. § 226(e); 43 C.F.R. § 3107.2-1 (emphasis added).
91 30 U.S.C. § 226(i); 43 C.F.R. § 3107.2-2.
92 See 30 U.S.C. § 226(e).
93 Id. § 226(m).
94 Id.; 43 C.F.R. § 3107.3-1.

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MLLA.95 In some situations the Secretary has the authority to cancel the lease, but
some circumstances require a judicial proceeding to cancel the lease.96 In addition,
MLLA provides for automatic termination “upon failure of a lessee to pay rental on
or before the anniversary date of the lease, for any lease on which there is no well
capable of producing oil or gas in paying quantities.”97 However, the Secretary may
reinstate automatically terminated leases in some cases.98
Applications for Permits to Drill
U.S. Department of the Interior
Operators99 must submit an Application for a Permit to Drill (APD) for each oil
or gas well.100 Without an approved APD, operators cannot begin drilling operations
or cause surface disturbances that are preliminary to drilling.101 In fact, the APD
process must begin at least thirty days prior to the commencement of operations.102
A complete APD must include the following:103
! a drilling plan;
! a surface use plan of operations, including drillpad locations and
plans for reclaiming the surface;
! evidence of bond coverage;
! Form 3160-3; and
! any other information that may be required.
Once BLM receives an APD, it must post information for public inspection for
at least thirty days before it may act on the APD.104 Another pre-approval
requirement is that BLM must prepare an environmental record of review or an
environmental assessment.105 Based on these documents, BLM decides whether an
95 30 U.S.C. § 188(a); 43 C.F.R. § 3108.3(a), (b).
96 See 43 C.F.R. § 3108.3(a), (b).
97 30 U.S.C. § 188(b).
98 See id. § 188(c)-(e), (g), (j).
99 “Operator means any person or entity including but not limited to the lessee or operating
rights owner, who has stated in writing to the authorized officer that it is responsible under
the terms and conditions of the lease for the operations conducted on the leased lands or a
portion thereof.” 43 C.F.R. § 3160.0-5.
100 Id. § 3162.3-1(c); see 43 U.S.C. § 1732(b).
101 43 C.F.R. § 3162.3-1(c).
102 Id. § 3162.3-1(d).
103 Id. § 3162.3-1(d), (f).
104 30 U.S.C. § 226(f); 43 C.F.R. § 3162.3-1(g).
105 43 C.F.R. § 3162.5-1(a).

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EIS is required.106 Additionally, an adequate bond or other financial arrangement is
required before the operator begins any surface-disturbing activities.107
Within five working days of the end of the public notice period, BLM must
choose one of four options:108
! (1) approve the application as submitted;
! (2) approve the application with modifications and/or conditions;
! (3) disapprove the application; or
! (4) delay final action.
BLM must approve a surface use plan of operations addressing proposed
surface-disturbing activities before a permit to drill on lands BLM manages may be
granted.109 BLM and the Forest Service have proposed joint regulations regarding
surface use plans of operations.110
U.S. Forest Service
An approved surface use plan of operations addressing proposed surface-
disturbing activities is also required before a permit to drill on NFS lands may be
granted and before any surface-disturbing operations may begin.111 The operator
must submit its proposed surface use plan of operations to BLM as part of its APD.112
When the proposal pertains to NFS lands, BLM forwards the proposed surface use
plan of operations to the Forest Service.113
The level of detail required in a proposed plan varies depending upon the “type,
size, and intensity of the proposed operations and the sensitivity of the surface
resources that will be affected by the proposed operations.”114 When evaluating a
proposed surface use plan of operations, the Forest Service must ensure that the
proposal is consistent with the “approved forest land and resource management plan”
106 Id.
107 30 U.S.C. § 226(g).
108 43 C.F.R. § 3162.3-1(h).
109 30 U.S.C. § 226(g).
110 On July 27, 2005, BLM and the Forest Service published a joint proposed rule that would
revise an existing Onshore Oil and Gas Order. “The revised Order would address the
submittal of a complete [APD],” including drilling plans and surface use plans of operations.
See 70 Fed. Reg. 43,349 (proposed July 27, 2005) (to be codified at 36 C.F.R. pt. 228 and
43 C.F.R. pt. 3160).
111 30 U.S.C. § 226(g); 36 C.F.R. § 228.106(a).
112 Id.
113 Id.
114 Id. § 228.106(c).

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for that area of land.115 During the evaluation process, the Forest Service must also
comply with NEPA, as well as appropriate Forest Service regulations and policies.116
In addition, the Forest Service can require that the operator increase the amount of
its bond if it “determines [that] the financial instrument held by [BLM] is not
adequate to ensure complete and timely reclamation and restoration” of the NFS
lands.117
Ultimately, the Forest Service must decide among four options:118
! (1) approve the plan
! (2) approve the plan “subject to specified conditions”
! (3) disapprove the plan
! (4) delay the plan because additional time is needed to reach a
decision
Once it has made its decision regarding the proposed surface use plan of
operations, the Forest Service forwards the decision to BLM.119
Analysis of Proposed Legislation on Oil and Gas
Leasing and Permitting
During the 109th Congress, both the House of Representatives and the Senate
passed comprehensive energy bills, the Domenici-Barton Energy Policy Act of 2005
(H.R. 6).120 These bills were reconciled in conference, but the Conference
Committee’s report (Conference Report) has not been voted on by the House or the
Senate as of the date of this report’s publication.121
This section of the report highlights selected provisions from the Conference
Report that relate to topics addressed in this report. This section also addresses
selected provisions that were included in either the House or Senate bill, but were not
included in the Conference Report. The topics addressed by this section can be
classified into four categories: (1) streamlining and expediting oil and gas
development processes; (2) a NEPA-related provision; (3) the Arctic National
Wildlife Refuge; and (4) miscellaneous provisions.
115 16 U.S.C. § 1604(i); 36 C.F.R. § 228.107(a)(2).
116 36 C.F.R. § 228.107(a); see 16 U.S.C. § 1604(g).
117 36 C.F.R. § 228.109(a).
118 Id. § 228.107(b).
119 Id. § 228.107(d).
120 See 151 Cong. Rec. H2449-2450 (daily ed. Apr. 21, 2005); 151 Cong. Rec. S7477 (daily
ed. June 28, 2005).
121 The Conference Report was filed on July 27, 2005.

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Streamlining and Expediting Oil and Gas Development
Processes

The Conference Report requires the Secretary of the Interior and the Secretary
of Agriculture to enter into a memorandum of understanding regarding issues such
as the establishment of procedures to “ensure timely processing” of oil and gas lease
applications, surface use plans of operation, and APDs.122 This memorandum must
also ensure that lease stipulations are consistently applied and are “only as restrictive
as necessary to protect the resource for which the stipulations are applied.”123
The Secretary of the Interior — in consultation with the Secretary of Agriculture
when NFS lands are involved — must also conduct an internal review of Federal
onshore oil and gas leasing and permitting practices.124 The Secretary of the Interior
is also required to establish a Federal Permit Streamlining Pilot Project.125
Under the Conference Report, the Secretary of the Interior is required to ensure
expeditious compliance with 42 U.S.C. § 4332(2)(C), which is the NEPA provision
that requires the preparation of an EIS for major Federal actions that significantly
affect the quality of the human environment.126 More specifically, the Secretary of
the Interior must propose regulations containing deadlines for making decisions on
RMPs, lease applications, surface use plans of operations, and APDs.127 The
Conference Report also requires the Secretary of Agriculture to “ensure expeditious
compliance with all applicable environmental and cultural resources laws.”128
NEPA-Related Provision
The Conference Report provides that certain actions taken by either the
Secretary of the Interior or by the Secretary of Agriculture (when NFS lands are
involved) “shall be subject to a rebuttable presumption that the use of a categorical
exclusion under [NEPA] would apply if the activity is conducted pursuant to
[MLLA] for the purpose of exploration or development of oil or gas.”129
The House bill had included a provision that differed from the NEPA provision
adopted by the Conference Committee. The House bill had declared that certain
actions that the Secretary of the Interior takes “for the purpose of exploration or
development of a domestic Federal energy source” are not subject to the NEPA
122 Conf. Rep. § 363, 109th Cong. (2005); see also H.R. 6, 109th Cong. §§ 344, 2024 (2005);
Senate Amendment to H.R. 6, 109th Cong. § 343 (2005).
123 Conf. Rep. § 363; see also H.R. 6, §§ 344, 2024; Senate Amend. to H.R. 6, § 343.
124 Conf. Rep. § 361; see also H.R. 6, § 2022; Senate Amend. to H.R. 6, § 341.
125 Conf. Rep. § 365; see also H.R. 6, § 2026; Senate Amend. to H.R. 6, § 344.
126 Conf. Rep. § 362; see also H.R. 6, § 2023; Senate Amend. to H.R. 6, § 342.
127 Conf. Rep. § 362; see also H.R. 6, § 2023; Senate Amend. to H.R. 6, § 342.
128 Conf. Rep. § 362; see also Senate Amend. to H.R. 6, § 342.
129 Conf. Rep. § 390.

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provision requiring the preparation of an EIS.130 Exempted actions would have
included drilling an oil or gas well where drilling had previously occurred and
drilling an oil or gas well “within a developed field for which an approved land use
plan or any environmental document prepared pursuant to [NEPA] analyzed such
drilling as a reasonably forseeable activity.”131
Arctic National Wildlife Refuge (ANWR)
One much-debated difference between the House and Senate energy bills had
been the House bill’s provisions requiring the Secretary of the Interior to establish
a competitive oil and gas leasing program in the Arctic National Wildlife Refuge
(ANWR).132 The Conference Report does not include these provisions. However,
several of the key ANWR provisions under the House bill are detailed in the
following paragraph, and may be enacted in a separate measure.
Under the House bill, ANWR lands would have been available for leasing to
any person qualified to obtain a lease under MLLA.133 Bids would have been
submitted as sealed competitive bids.134 Two unique ANWR provisions in the House
bill included (1) a provision requiring the first lease sale to be for at least 200,000
acres, with additional sales to be conducted as long as there is sufficient interest in
development135 and (2) a provision directing that the State of Alaska would receive
50 percent of ANWR leasing revenues, with the remainder being divided between a
Coastal Plain Local Government Impact Aid Assistance Fund and miscellaneous
receipts within the U.S. Treasury.136
Miscellaneous Provisions
Miscellaneous relevant provisions contained in the Conference Report include
the following:
! The Secretary of the Interior must reduce the royalty rate for oil and
gas production on “marginal properties” (i.e., leases or units
producing less than a specified amount), under certain conditions.137
Further royalty relief provisions extend to other circumstances.138
130 H.R. 6, § 2055 (referring to the NEPA provision codified at 42 U.S.C. § 4332(2)(C)).
131 Id.
132 Id. § 2203.
133 Id. § 2204 (referring to the MLLA provision codified at 30 U.S.C. § 181).
134 Id.
135 See id. § 2204.
136 See id. §§ 2209, 2212(d).
137 Conf. Rep. § 343; see also H.R. 6, § 2003; Senate Amend. to H.R. 6, § 313.
138 See Conf. Rep. § 2016-17; see also H.R. 6, §§ 2016-17.

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! The Secretary of the Interior may reinstate leases that were
terminated because of the lessee’s failure to timely pay the rental
amount due, under certain modified conditions.139
! The Secretary of the Interior must determine that receiving royalties
in-kind would provide greater or equal benefits than receiving
royalties in-value before accepting any royalties in-kind.140
! The Secretary of the Interior must conduct a study regarding split
estates.141
! The Secretary of Energy must conduct a study of petroleum and
natural gas storage capacity and operational inventory levels.142
Recent Litigation Surrounding Coalbed
Methane Leasing
Coalbed methane (CBM) is a natural gas that is trapped in coal seams by water
pressure. Developers extract CBM by pumping water into coal seams to decrease the
water pressure, thereby releasing the CBM.143 In the second half of the 1990s, CBM
production “increased dramatically to represent a significant new source of natural
gas for many Western states.”144 In 1999, the Supreme Court held that CBM could
be leased separately from coal.145 Recently, environmental groups, developers, and
BLM have litigated issues surrounding what actions constitute compliance with
FLPMA and NEPA in the context of CBM development. These issues have
developed through several cases adjudicated by federal courts and the Interior Board
of Land Appeals (IBLA), which is part of the U.S. Department of the Interior.
139 Conf. Rep. § 371; see also Senate Amend. to H.R. 6, § 348.
140 Conf. Rep. § 342; see also H.R. 6, § 2002; Senate Amend. to H.R. 6, § 312.
141 Conf. Rep. § 1835; see also H.R. 6, § 2051; Senate Amend. to H.R. 6, § 1321.
142 Conf. Rep. § 1801; see also H.R. 6, § 1601; Senate Amend. to H.R. 6, § 1319.
143 Frequently Asked Questions: Coalbed Methane, Montana State University Department
o f L a n d R e s o u r c e s a n d E n v i r o n m e n t a l S c i e n c e s , a t
[http://waterquality.montana.edu/docs/methane/cbmfaq.shtml] (last modified July 18, 2005).
144 Coal Bed Methane Primer: New Source — Environmental Implications, ALL Consulting
and the Montana Board of Oil and Gas Conservation, at [http://bogc.dnrc.state.mt.us] (Feb.
2004).
145 See Amoco Prod. Co. v. S. Ute Indian Tribe, 526 U.S. 865, 877-80 (1999) (stating that
“[t]o the extent Congress had an awareness of it, there is every reason to think it viewed the
extraction of CBM gas as drilling for natural gas, not mining coal”).

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The Pennaco Decision
In one prominent case, environmental groups challenged a BLM decision to
issue CBM leases to Pennaco, an energy developer.146 When it auctioned the leases,
BLM relied on two documents to purportedly satisfy NEPA requirements:147
(1) an RMP and EIS that were prepared before the leases were issued, but did not
specifically address CBM extraction (“the Buffalo RMP/EIS”)
(2) a draft EIS (DEIS) that was prepared after the leases were issued, but did
address the potential environmental impacts of CBM development (“the Wyodak
DEIS”)
The BLM also determined that the Pennaco leases conformed with the Buffalo RMP,
thus satisfying FLPMA.148 However, environmental groups alleged that the
environmental impacts from CBM development were different than the impacts from
conventional oil and gas development.149 Thus, they argued that BLM did not take
the requisite “hard look” at the potential environmental impacts of issuing the
Pennaco leases.150
The Interior Board of Land Appeals sided with the environmental groups by
finding that NEPA had not been satisfied and remanding to BLM for “additional
appropriate action.”151 The IBLA found the Buffalo RMP/EIS to be inadequate
because it did not specifically address CBM development, which the IBLA
considered to be significantly different than the conventional development analyzed
by the Buffalo RMP/EIS.152 For example, the IBLA concluded that water production
resulting from CBM extraction is significantly greater than water production from
conventional oil and gas development and that CBM development posed unique air
quality concerns.153 Further, the IBLA explained that the Wyodak DEIS did not
satisfy NEPA because it was a post-leasing analysis.154 In particular, because it was
a post-leasing analysis, the Wyodak DEIS “did not consider reasonable alternatives
available in a leasing decision, including whether specific parcels should be leased
[and] appropriate lease stipulations.”155 Although the IBLA’s decision was reversed
146 Pennaco Energy, Inc. v. U.S. Dep’t of the Interior, 377 F.3d 1147 (10th Cir. 2004).
147 Id. at 1152.
148 Id.
149 Id. at 1152-53.
150 Id.
151 Wyoming Outdoor Council, 156 I.B.L.A. 347, 359 (U.S. Dep’t of the Interior Apr. 26,
2002).
152 Id. at 358.
153 Id.
154 Id. at 358-59.
155 Id.

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by a federal district court,156 the Tenth Circuit Court of Appeals agreed with the
IBLA.157 In Pennaco Energy, Inc. v. United States Department of the Interior, the
Tenth Circuit held that “the IBLA gave due consideration to the relevant factors and
that the IBLA’s conclusion was supported by substantial evidence in the
administrative record.”158
Other CBM-Related Decisions
Pennaco appears to be the key Circuit Court decision on the merits of a case
applying FLPMA and NEPA to CBM development in this context. However, a
variety of other judicial and administrative decisions have addressed similar issues.
These cases often turn on fact-intensive, case-by-case determinations. Several such
decisions are briefly summarized below.
In Northern Plains Resource Council, Inc. v. United States Bureau of Land
Management, BLM had amended an RMP and prepared an EIS to address the
impacts of oil and gas leasing in several areas.159 These documents analyzed and
allowed small-scale exploratory CBM drilling.160 However, they stated that “further
environmental studies would have to be completed before commercial production
would be allowed.”161 Years later, after receiving APDs for the covered land, BLM
completed EAs and made FONSIs for numerous CBM wells.162 Based on the
FONSIs, BLM approved the APDs without preparing an EIS.163 BLM later
recognized the energy industry’s intention to engage in full-field CBM development
on some land, prompting it to prepare a new statewide EIS and proposed RMP
amendments addressing the environmental impacts of large-scale CBM
development.164 The United States District Court for the District of Montana rejected
the plaintiff’s argument that the original RMP and EIS were inadequate, thus
violating FLPMA and NEPA.165 It held that the disputed APDs were all for test wells
and thus fell within the scope of the exploratory drilling contemplated by the original
documents.166 Further, the court explained that once BLM had begun preparing a
new EIS to address full-field development, “it was not required to halt lease sales, as
156 Pennaco Energy, Inc. v. U.S. Dep’t of the Interior, 266 F. Supp. 2d 1323, 1330-31 (D.
Wyo. 2003).
157 Pennaco, 377 F.3d at 1162.
158 Id. at 1156.
159 N. Plains Res. Council, Inc. v. U.S. Bureau of Land Mgmt., 298 F. Supp. 2d 1017, 1020
(D. Mont. 2003).
160 Id.
161 Id. at 1020-21.
162 Id. at 1021.
163 Id.
164 See id.
165 Id. at 1019, 1022-24.
166 Id. at 1023.

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long as [the leases] were in conformance with the existing plan.”167 The Ninth
Circuit Court of Appeals affirmed this decision on procedural grounds because the
plaintiff’s challenge was barred by the statute of limitations.168
In subsequent litigation, the same plaintiff challenged the new statewide EIS and
proposed RMP amendments, which authorized full-field CBM development in some
areas.169 The United States District Court for the District of Montana agreed with one
of the plaintiff’s two primary arguments.170 It held that BLM should have considered
a “phased development alternative” as an alternative to full-field CBM
development.171 However, it also held that BLM was justified in conducting two
separate studies of the area, rather than conducting one larger study.172
In San Juan CitizensAlliance v. Babbitt, plaintiffs argued that BLM had acted
arbitrarily and capriciously — thus violating NEPA — by approving CBM wells at
twice the density that was contemplated by existing environmental documents.173
Prior to approving the challenged CBM wells, BLM had issued a statewide EIS as
well as preparing an EA and making a FONSI for a smaller area within the state.174
However, the plaintiffs claimed that BLM should have either created a new EIS or
a supplemental EIS (SEIS) to sufficiently address the cumulative environmental
impacts of the existing wells combined with the impacts of the newly approved
wells.175 Plaintiffs asserted that new information shedding light on the environmental
impacts of CBM development had become available since the issuance of the original
documents.176 Plaintiffs also argued that BLM had violated FLPMA by approving
CBM development that allegedly did not conform to the RMP.177 The defendants
moved to dismiss, and the United States District Court for the District of Colorado
denied the motion.178
167 Id. at 1024.
168 N. Plains Res. Council v. U.S. Bureau of Land Mgmt., 107 Fed. Appx. 166 (9th Cir.
2004).
169 N. Plains Res. Council v. U.S. Bureau of Land Mgmt., 2005 U.S. Dist. LEXIS 4678 at *6
(D. Mont. Feb. 25, 2005).
170 See id. at *29, *33.
171 Id. at *29.
172 Id. at *33. One study addressed land in Wyoming, while the other addressed land in
Montana. Id. at *31. The court stated that the timing of the two proposals varied, the scope
of the studies differed, and that CBM was being developed at significantly different paces
in the two states. Id. at *33-34.
173 San Juan Citizens’ Alliance v. Babbitt, 228 F. Supp. 2d 1224, 1226-27 (D. Colo. 2002).
174 Id. at 1227.
175 Id. at 1226.
176 Id. at 1228.
177 Id. at 1226.
178 Id. at 1233. It appears that this case was not further litigated after this ruling.

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Several IBLA decisions also address similar issues. In the 2003 matter of
Wyoming Outdoor Council, the IBLA ruled that BLM had not taken the NEPA-
mandated “hard look” at water quality issues associated with CBM development in
one area.179 The IBLA found the BLM’s water quality analysis to be inadequate
because it was based on only one CBM well sample and neither of BLM’s EAs
addressed “any deleterious impact of CBM discharge water due to its chemical
composition.”180 The IBLA also found that BLM should have considered the
cumulative environmental impacts of the new wells combined with some nearby
wells that met “the geographical proximity test for inclusion in a cumulative impacts
analysis.”181
In the 2004 matter of Western Slope Environmental Resource Council, the IBLA
stated:
[T]he appropriate time for considering the potential impacts of oil and gas
exploration and development is when BLM proposes to lease public lands for oil
and gas purposes because leasing, at least without [no surface occupancy
stipulations], constitutes an irreversible and irretrievable commitment to permit
surface-disturbing activity.182
The IBLA went on to hold that the appellants had not proven that the environmental
impacts of CBM development in the disputed area would be different from the
impacts of conventional oil and gas development.183 Even though the unique
environmental impacts of CBM had been recognized in some cases, the IBLA
emphasized that the appellants had not met their burden of proof in this particular
case.184 Evidence indicated that the disputed coalbeds were located far beneath the
surface and that there was a “lack of transmissivity of the coal.”185 According to the
IBLA, this evidence suggested that CBM extraction in this area would not produce
a large amount of water, thus limiting the environmental impacts that would occur.186
179 Wyoming Outdoor Council, 158 I.B.L.A. 155, 163 (U.S. Dep’t of the Interior Jan. 9,
2003).
180 Id.
181 Id. at 173-74.
182 W. Slope Envtl. Res. Council, 163 I.B.L.A. 262, 285 (U.S. Dep’t of the Interior Oct. 28,
2004).
183 Id. at 289-290.
184 Id.
185 Id. at 286, 289.
186 Id. at 286.

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List of Acronyms
ANWR
Arctic National Wildlife Refuge
APD
Application for a Permit to Drill
BLM
Bureau of Land Management
CBM
Coalbed methane
DEIS
Draft Environmental Impact Statement
EA
Environmental Assessment
EIS
Environmental Impact Statement
FLPMA
Federal Land Policy and Management Act of 1976
FONSI
Finding of No Significant Impact
IBLA
Interior Board of Land Appeals
MLLA
Mineral Lands Leasing Act of 1920
NEPA
National Environmental Policy Act of 1969
NFS
National Forest System
RMP
Resource Management Plan
SEIS
Supplemental Environmental Impact Statement