Mineral Leasing Act of 1920
The Mineral Leasing Act of 1920 is a significant piece of legislation in the United States that governs the development of energy minerals and certain soft-rock minerals on onshore federal lands. This act was created in response to the challenges associated with the earlier Mining Act of 1872, which allowed private parties to claim mineral deposits without paying royalties to the government, leading to ineffective management of valuable resources like oil, gas, and coal. The Mineral Leasing Act established a leasing system where the government retains ownership of mineral resources while granting private companies the right to extract these minerals for a specified period, in exchange for a royalty fee based on production.
Under this framework, the Secretary of the Interior plays a crucial role by overseeing the leasing process, which includes both competitive and noncompetitive bidding systems for mineral rights. The act aims to ensure the responsible development of natural resources, balancing economic interests with environmental stewardship. By implementing a structured approach to mineral extraction, the Mineral Leasing Act seeks to provide the federal government with a reasonable financial return while promoting sustainable use of public lands.
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Subject Terms
Mineral Leasing Act of 1920
- DATE: Took effect February 25, 1920; subsequently amended many times
The purposes of the US Mineral Leasing Act were to expand the government’s control over public mineral lands, to promote the development of oil and gas deposits on public lands by private enterprise, and to promote the wise use of selected minerals with a reasonable financial return.
Background
Nearly one-third of the land in the United States is owned by the federal government. These public lands are concentrated in the West and Alaska and are important sites for resources. The Mineral Leasing Act of 1920 was enacted to establish a system for developing energy minerals (coal, oil shale, oil, and gas) and certain soft-rock minerals (phosphate, potassium, sodium, sulfur, and native asphalt) on onshore public lands. The goals of the act were to expand the secretary of the interior’s control over specific minerals on public lands, to promote the development of oil and gas deposits on public lands by private companies, and to promote the wise use of natural resources while receiving a reasonable financial return for the public.
Provisions
The primary system for mineral development on public lands is based on the Mining Act of 1872. This location system cedes government ownership of commercial mineral deposits to private parties who are able to find them; no royalty (share of the revenue) is paid to the government. This system did not work for oil and gas deposits or for a mineral of strategic concern, such as coal (essential for the steam-powered Navy of the early 1900s). Problems with developing these types of minerals forced several presidents to withdraw sections of public lands from potential mineral development, seeing this as the only alternative to the existing system. The Mineral Leasing Act created a leasing system as the method for developing these types of minerals.
Impact on Resource Use
The core of any leasing system is the allocation of leases. With a lease, the government maintains ownership of the mineral deposit but grants the right to exploit the mineral values to a private party for a set period of time. The government receives a royalty on any production that occurs. The government is able to control what properties are developed, who develops them, and what financial return is received. The method for allocating leases and the amount of royalty to be paid varies. Coal and oil and gas leases for known deposits are granted under a competitive bidding scheme. The producers must pay at least a 12.5 percent royalty. In addition, sealed bonus bids are made. A bonus bid is an upfront cash payment. The highest bidder receives the lease if the bid is considered adequate. For other properties, a noncompetitive bidding system is used; this may be a lottery or a first-come, first-served system. A royalty still must be paid on production. Typically, this royalty is 12.5 to 16 percent. Sometimes the royalty is much less if the government wishes to encourage production.
"Mineral Leasing Act." International Energy Agency (IEA), 28 June 2022, www.iea.org/policies/15000-mineral-leasing-act. Accessed 23 Dec. 2024.
"Mineral Leasing Act of 1920 (30 USC Chapter 3A)." Food & Drug Agriculture Organization of the United Nations, 6 Sept. 2024, www.fao.org/faolex/results/details/en/c/LEX-FAOC198940/. Accessed 23 Dec. 2024.
Western, Samuel. "The Mineral Leasing Act of 1920: The Law That Changed Wyoming’s Economic Destiny." Wyoming Historical Society, 8 Nov. 2014, www.wyohistory.org/encyclopedia/mineral-leasing-act-1920-law-changed-wyomings-economic-destiny. Accessed 23 Dec. 2024.