B-126352, MAR. 2, 1956

B-126352, MAR. 2, 1956

TO THE SECRETARY OF THE INTERIOR:

REFERENCE IS MADE TO LETTER DATED DECEMBER 12, 1955, FROM THE ADMINISTRATIVE ASSISTANT SECRETARY, REQUESTING A DECISION AS TO WHETHER DELAY RENTAL FOR THE FINAL PORTION OF THE PRIMARY TERM OF CERTAIN LEASES COVERING OUTER CONTINENTAL SHELF LANDS OFF THE STATE OF LOUISIANA CAN AND SHOULD BE PRORATED IN THOSE INSTANCES WHERE THE ANNIVERSARY DATE AND THE EXPIRATION DATE OF THE PRIMARY TERM DIFFER BY REASON OF THE OPERATION OF SECTION 6 OF THE OUTER CONTINENTAL SHELF LANDS ACT OF AUGUST 7, 1953, 67 STAT. 462, 43 U.S.C. 1335.

IT IS STATED THAT THE LEASES INVOLVED ARE THOSE SO-CALLED SPLIT LEASES ISSUED BY THE STATE OF LOUISIANA WHICH HAVE BEEN CONTINUED IN EFFECT PURSUANT TO SECTION 6 OF THE ACT OF AUGUST 7, 1953, SUPRA. THE REPRESENTATIVE LEASE (OCS-0297, STATE LEASE NO. 872) SUBMITTED SHOWS IT WAS ISSUED BY THE STATE OF LOUISIANA ON NOVEMBER 26, 1946, FOR A PRIMARY TERM OF FIVE YEARS, WITH DELAY RENTALS PAYABLE THEREUNDER AT $47,500 PER YEAR. THE PRIMARY TERM OF THE LEASE WAS EXTENDED FOR AN ADDITIONAL TWO YEARS BY AGREEMENT OF JULY 27, 1950, BETWEEN THE STATE MINERAL BOARD AND THE LESSEE. BY DECISION OF JULY 17, 1955, THE BUREAU OF LAND MANAGEMENT FIXED A PRIMARY TERM OF THE LEASE, AS CONTINUED UNDER SECTION 6/B) OF THE ACT, TO BE JULY 22, 1956.

SECTION I OF THE LEASE REGARDING THE PAYMENT OF DELAY RENTAL, PROVIDES AS FOLLOWS:

"LESSEE HAS THIS DAY PAID TO LESSOR THE SUM OF NINETY-FIVE THOUSAND ($95,000) DOLLARS FOR THE RIGHT TO BEGIN THE DRILLING OF A WELL ON THE HEREIN LEASED PREMISES AT ANY TIME WITHIN ONE (1) YEAR FROM THE DATE HEREOF, SAID SUM ALSO BEING PART CONSIDERATION FOR LESSEE'S RIGHT TO DELAY SUCH DRILLING OPERATIONS UNDER THE CONDITIONS HEREINAFTER PROVIDED.

"SHOULD LESSEE FAIL TO BEGIN THE ACTUAL DRILLING (SPUDDING IN) OF A WELL ON THESE PREMISES WITHIN THE ONE (1) YEAR ABOVE PROVIDED, THEN THIS LEASE SHALL TERMINATE AS TO BOTH PARTIES, LESSOR AND LESSEE, UNLESS ON OR BEFORE SUCH ANNIVERSARY DATE LESSEE PAYS TO LESSOR THE SUM OF FORTY-SEVEN THOUSAND FIVE HUNDRED ($47,500.00) DOLLARS (HEREIN CALLED RENTAL), WHICH PAYMENT SHALL COVER THE PRIVILEGE OF DEFERRING COMMENCEMENT OF DRILLING OPERATIONS (AS ABOVE DEFINED) FOR A PERIOD OF TWELVE (12) MONTHS. IN LIKE MANNER, AND UPON LIKE PAYMENTS ANNUALLY, THE COMMENCEMENT OF DRILLING OPERATIONS MAY BE FURTHER DEFERRED FOR SUCCESSIVE PERIODS OF TWELVE (12) MONTHS EACH, DURING THE PRIMARY TERM OF THE LEASE, WHICH PRIMARY TERM IS HEREBY DECLARED TO BE FIVE (5) YEARS FROM THE DATE HEREOF.

"IF DURING THE PRIMARY TERM OF THIS LEASE AS ABOVE SET FORTH, LESSEE SHALL BEGIN ACTUAL DRILLING ON THE PREMISES AND SHALL THEREAFTER CEASE SUCH DRILLING OPERATIONS FOR MORE THAN SIXTY (60) DAYS, PRIOR TO DEVELOPING AND PRODUCING SULPHUR, POTASH, OIL, GAS AND/OR OTHER LIQUID OR GASEOUS HYDRO-CARBON MINERAL IN PAYING QUANTITIES, THEN THE SAID LESSEE MAY CONTINUE ITS RIGHTS IN EFFECT FOR THE REMAINDER OF THE PRIMARY TERM OF THE LEASE BY RESUMING PAYMENTS AS ABOVE PROVIDED, AND BY PAYING TO LESSOR, WITHIN SIXTY (60) DAYS FROM THE CESSATION OF DRILLING OPERATIONS, THE PAYMENT FOR THE CURRENT PERIOD WHICH LESSEE MUST HAVE PAID TO MAINTAIN ITS RIGHTS HAD LESSEE BEGUN NO SUCH OPERATIONS.'

SECTION 6/B) OF THE OUTER CONTINENTAL SHELF LANDS ACT PROVIDES, IN PERTINENT PART, THAT---

"/B) ANY PERSON HOLDING A MINERAL LEASE, WHICH AS DETERMINED BY THE SECRETARY MEETS THE REQUIREMENTS OF SUBSECTION (A) OF THIS SECTION, MAY CONTINUE TO MAINTAIN SUCH LEASE, AND MAY CONDUCT OPERATIONS THEREUNDER, IN ACCORDANCE WITH (1) ITS PROVISIONS AS TO THE AREA, THE MINERALS COVERED, RENTALS AND, SUBJECT TO THE PROVISIONS OF PARAGRAPHS (8), (9) AND (10) OF SUBSECTION (A) OF THIS SECTION, AS TO ROYALTIES AND AS TO THE TERM THEREOF AND OF ANY EXTENTIONS, RENEWALS, OR REPLACEMENTS AUTHORIZED THEREIN OR HERETOFORE AUTHORIZED BY THE LAWS OF THE STATE ISSUING SUCH LEASE, OR, IF OIL OR GAS WAS NOT BEING PRODUCED IN PAYING QUANTITIES FROM SUCH LEASE ON OR BEFORE DECEMBER 11, 1950, OR IF PRODUCTION IN PAYING QUANTITIES HAS CEASED SINCE JUNE 5, 1950, OR IF THE PRIMARY TERM OF SUCH LEASE HAS EXPIRED SINCE DECEMBER 11, 1950, THEN FOR A TERM FROM THE EFFECTIVE DATE HEREOF EQUAL TO THE TERM REMAINING UNEXPIRED ON DECEMBER 11, 1950, UNDER THE PROVISIONS OF SUCH LEASE OR ANY EXTENSIONS, RENEWALS, OR REPLACEMENTS AUTHORIZED THEREIN, OR HERETOFORE AUTHORIZED BY THE LAWS OF SUCH STATE, AND (2) SUCH REGULATIONS AS THE SECRETARY MAY UNDER SECTION 5 OF THIS ACT PRESCRIBE WITHIN NINETY DAYS AFTER MAKING HIS DETERMINATION THAT SUCH LEASE MEETS THE REQUIREMENTS OF SUBSECTION (A) OF THIS ACT * * *.'

THE PURPOSE OF SECTION 6/B) OF THE ACT, IN THE CASE OF A NON PRODUCING RENT PAYING LEASE, IS TO PERMIT A FORMER STATE LESSEE, UNDER CERTAIN CONDITIONS, TO OBTAIN AND ENJOY THE FULL BENEFIT OF HIS LEASE FOR A PERIOD EQUIVALENT TO THE TIME DURING WHICH HE WAS PREVENTED FROM ENJOYING THE LEASE. UNDER THE ACT THE PROVISIONS OF THE LEASE ITSELF, WITH CERTAIN EXCEPTIONS, ARE TO GOVERN QUESTIONS OF AREA, MINERALS COVERED, RENTALS, ROYALTIES AND THE TERM ARISING THEREUNDER.

SECTION I OF THE LEASE PROVIDES THAT IT IS TO TERMINATE AT THE END OF THE FIRST OR ANY SUCCEEDING YEAR UNLESS (1) DRILLING OPERATIONS HAVE BEGUN OR (2) A PAYMENT OF $47,500 IS DE,"WHICH PAYMENT SHALL COVER THE PRIVILEGE OF DEFERRING COMMENCEMENT OF DRILLING OPERATIONS (AS ABOVE DEFINED) FOR A PERIOD OF TWELVE (12) MONTHS.' AT THE TIME THE LEASE WAS ENTERED INTO THERE COULD HAVE BEEN NO PERIOD OF LESS THAN 12 MONTHS AND NO QUESTION OF PRORATION COULD HAVE ARISEN. IT IS ONLY DUE TO THE TAKING OVER THE THE SO -CALLED LEASE BY THE FEDERAL GOVERNMENT AND THE EXTENSION OF THE LEASE TERM IS AUTHORIZED BY SECTION 6 OF THE ACT THAT THE QUESTION OF PRORATION ARISES. ALTHOUGH THE ACT IS SILENT AS TO THE AMOUNT OF RENTAL DUE FOR THE LAST PORTION OF THE PRIMARY TERM, THE REASON FOR THE TAKING OVER OF THE LEASE AND THE EXTENSION OF THE LEASE TERM WAS IN RECOGNITION OF CERTAIN EQUITIES. IN THE CIRCUMSTANCES, IT IS NOT BELIEVED THAT THE CONGRESS INTENDED THAT A LESSEE WOULD BE REQUIRED TO PAY A FULL YEAR'S RENTAL IN INSTANCES WHERE THE LAST PORTION OF THE PRIMARY TERM IS LESS THAN 12 MONTHS. A CONTRARY CONCLUSION WOULD RESULT IN DISCRIMINATION AMONG LESSEES DEPENDING UPON THE PERIOD COVERED BY THE FINAL PORTION OF THE PRIMARY TERM. ALTHOUGH IT MIGHT BE ARGUED THAT ALL LESSEES HAVE THE SAME CHOICE OF DETERMINING WHETHER OR NOT FURTHER EXTENSION OF THE LEASE OPTION IS WORTH THE EXPENDITURE OF A FULL YEAR'S DELAY RENTAL, THE CHOICE IS NOT EQUAL SINCE THE PERIODS INVOLVED ARE NOT THE SAME. IT IS NOT BELIEVED THAT THE CONGRESS INTENDED TO THUS DISCRIMINATE BETWEEN LESSEES.

ACCORDINGLY, YOU ARE ADVISED THAT DELAY RENTALS MAY BE PRORATED FOR THE FINAL PORTION OF THE PRIMARY TERM IN THOSE INSTANCES WHERE THE ANNIVERSARY DATE AND THE EXPIRATION DATE OF THE PRIMARY TERM OF THE LEASE DIFFER BY REASON OF THE OPERATION OF SECTION 6 OF THE OUTER CONTINENTAL SHELF LANDS ACT OF AUGUST 7, 1953, SUPRA. ..END :