Dr. Gregg Wilkerson/ May Speaker

Abstract

The regulation of the exploration and development of the federal mineral estate began in 1866. It underwent a major change in 1920 when the Mineral Leasing Act removed oil, gas, and other minerals from location and patenting under the 1872 General mining law. Instead of claims there were leases. There was a two-tiered system. Lands classified as within a “Known Geologic Structure (KGS) of a producing oil field were leased competitively to the highest bidder. Lands outside the KGS were lease on a first-come, first served basis. If there was more than one applicant, a lottery was held.
This procedure was difficult to implement because of inconsistencies in definition of the KGS between regions and government geologist-classifiers and challenges in program administration. The definition of KGS in 1959 by the U.S. Geological Survey did not resolve the issue. After the 1974 Arab oil embargo and escalation of oil/gas values the federal lottery got out of hand. Companies competed to get everyone they could to enter the lottery for high value non-KGS leases. In Bakersfield oil landmen would pay citizens $25 to sign leasing forms. If they won, the lease would go to the oil company that paid for that proxy.
In the 1980’s there was a push to overhaul the 1920 Act or make the KGS classifications bigger. The 1920 Act was “Reformed” in 1987. The classifications were made by two geologists in the Bureau of Land Management (BLM) at the Bakersfield District office. They knew that some oil fields in the state were associated with fractured Monterey shale. Two papers were presented by one of them to the San Joaquin Geological society and published in their 1988 proceedings. The goal was to establish a technical basis for basin-wide Monterey Fractured Shale KGS that would maximize competitive leasing for applications received prior to December 22, 1987. Large scale hydraulic fracturing has not been very effective in the Miocene shales of California and the Monterey Fractured Shale KGS was never established because of internal disagreements within BLM about its merits in terms of the U.S.G.S. “limit of the trap” definition.
In 1986 there was a landmark case pertaining to KGS classifications in the Oxnard oil field. There the “trap” was identified as a tar seal. Since this seal was associated with a particular stratigraphic layer that could be traced over a wide area, the entire Oxnard basin was classified as within a KGS and suitable for competitive leasing. A legal challenge resulted in the courts siding with BLM “with prejudice.” That decision signaled that the Department of the Interior could proceed with re-writing the definitions of KGS and “limit of the trap” and put more lands into competitive status for leasing. Industry opposition waivered, and the 1987 Act was passed.
Another effect of the 1987 act was to move approval of lease applications from the Department of the Interior to the Department of Agriculture for leases on U.S National Forest lands. There are dozens of lease applications in California that are with the Department of Agriculture awaiting final environmental review for leasing. Those applications are now 34 years old and unlikely to be processed any time soon.