DAR File No. 27611

School and Institutional Trust Lands, Administration

R850-20

Mineral Resources

NOTICE OF PROPOSED RULE

DAR File No.: 27611
Filed: 12/23/2004, 03:33
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

The mineral rules have been amended many times and many of those changes pre-date the establishment of the School and Institutional Trust Lands Administration in 1994. Many changes have been made in how we do business and the current rule is confusing as to which sections apply to which commodities. New mineral rules have been written in an effort to give greater clarity and make them more user-friendly. Each commodity has been separated into its own rule so that the rules are commodity-specific. This rule is being replaced by: R850-21. Oil, Gas and Hydrocarbon Resources; R850-22. Bituminous-Asphaltic Sands and Oil Shale Resources; R850-23. Sand, Gravel and Cinders Permits; R850-24. General Provisions: Mineral and Material Resources, Mineral Leases and Material Permits; R850-25. Mineral Leases and Materials Permits; R850-26. Coal Leases; and R850-27. Geothermal Steam. (DAR NOTE: The proposed new rules are as follows: Rule R850-21 under DAR No. 27612, Rule R850-22 under DAR No. 27613, Rule R850-23 under DAR No. 27609, Rule R850-24 under DAR No. 27607, Rule R850-25 under DAR No. 27606, Rule R850-26 under DAR No. 27604, and Rule R850-27 under DAR No. 27601 all in this issue.)

Summary of the rule or change:

Rule R850-20 covering all mineral-type commodities is being repealed in its entirety in order that each commodity can be better regulated by its own commodity-specific rule. The new rules are available for review and comment during this same 30-day period of time.

State statutory or constitutional authorization for this rule:

Subsections 53C-1-302(1)(a)(ii), 53C-2-201(1)(a), 53C-2-401(1)(d)(ii), 53C-2-402(1), and 53C-2-407(4)

Anticipated cost or savings to:

the state budget:

It is not anticipated that the repeal of this rule will create any cost or savings to the State because it is being replaced with six separate rules that will regulate the same commodities.

local governments:

It is not anticipated that the repeal of this rule will create a cost or savings to local governments because of the simultaneous enactment of six separate rules that will regulate these same commodities.

other persons:

It is not anticipated that the repeal of this rule will bring about any cost or savings to other persons because of the simultaneous enactment of the six separate rules that will regulate these same commodities.

Compliance costs for affected persons:

It is not anticipated that the repeal of this rule will bring about any cost or savings for affected persons because of the simultaneous enactment of the six separate rules to the agency rules that will replace this rule.

Comments by the department head on the fiscal impact the rule may have on businesses:

Since the material in this rule will be re-promulgated in replacement rules concurrently with this action, it is not anticipated that there will be any fiscal impact from this action.

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

LaVonne Garrison at the above address, by phone at 801-538-5100, by FAX at 801-355-0922, or by Internet E-mail at lavonnegarrison@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

02/14/2005

This rule may become effective on:

04/01/2005

Authorized by:

Kevin S. Carter, Director

RULE TEXT

R850. School and Institutional Trust Lands, Administration.

[R850-20. Mineral Resources.

R850-20-100. Authorities.

This rule implements Sections 6, 8, 10, and 12 of the Utah Enabling Act, Articles X and XX of the Utah Constitution, and Sections 53C-1-302(1)(a)(ii) and 53C-2-402(1) which authorize the Director of the School and Institutional Trust Lands Administration to establish rules for the issuance of mineral leases and management of state owned lands and mineral resources.

R850-20-150. Planning.

Pursuant to Section 53C-2-201(1)(a), this category of activity carries no planning obligations by the agency beyond existing rule-based analysis and approval processes. Mineral development activities are regulated pursuant to R645, R647, and R649.

R850-20-175. Coal Leasing of Lands Acquired in Public Law 105-335 Exchange.

1. Acquired lands shall mean lands acquired by the School and Institutional Trust Lands Administration pursuant to the Utah Schools and Lands Exchange Act of 1998, Public Law 105-335, 112 Stat. 3139 (1998)(the "Act").

2. Leasing of coal interests in the acquired lands shall be governed by applicable provisions of state law, the Act, that certain Memorandum of Understanding Between the Utah School and Institutional Trust Lands Administration, the United States Department of Agriculture, and the United States Department of the Interior dated January 5, 1999, as amended from time to time, and, except as provided by R850-20-175(5), by the provisions of R850.

3. The director shall have broad discretion to determine terms, conditions and procedures for leasing coal interests in the acquired lands by simultaneous filing, including without limitation determination of rental rates, lease forms and lease stipulations for particular tracts, the amount of any required bid deposit, the minimum acceptable bid for particular tracts, terms of payment for bonus bids, and bidding procedures generally. The director may, but is not obligated to, disclose the minimum acceptable bid in advance of offering the lease by simultaneous filing.

4. In the event that the high bid in any simultaneous lease filing does not meet the minimum acceptable bid previously determined by the director, the director may, but is not obligated to, negotiate with the high bidder to obtain a negotiated bid that, in the discretion of the director, represents fair market value. Alternatively, the director may re-offer the lands for simultaneous filing, hold an oral auction of the lands pursuant to Subsection 53C-2-407(4), or withdraw the lands from leasing.

5. The following rules shall not apply to leasing of coal interests in the acquired lands by simultaneous filing: R850-20-700 (Non-Contiguous Tracts); R850-20-900 (Lease Acreage Limitations); R850-20-1000(1)(a)(Rentals); R850-20-1500 (Minimum Bid/Simultaneous Filing); R850-20-1600 (Posting Dates/Simultaneous Filing); R850-20-1100 (Rental Credit).

6. Nothing in this rule shall prevent the agency from leasing or otherwise disposing of coal interests in the acquired lands pursuant to Subsection 53C-2-401(1)(d)(ii), subject to compliance with applicable law.

R850-20-200. Mineral Leases--Issuance.

Applications are made for and the agency shall issue separate mineral leases on the following classifications of mineral substances:

1. Metalliferous Minerals - shall include Aluminum, Antimony, Arsenic, Beryllium, Bismuth, Chromium, Cadmium, Cerium, Columbium, Cobalt, Copper, Fluorspar, Gallium, Gold, Germanium, Hafnium, Iron, Indium, Lead, Mercury, Manganese, Molybdenum, Nickel, Platinum, Group Metals, Radium, Silver, Selenium, Scandium, Rare Earth Metals, Rhenium, Tantalum, Tin, Thorium, Tungsten, Thallium, Tellurium, Vanadium, Uranium, Ytterbium, and Zinc.

2. Oil, Gas, and Hydrocarbon - shall include oil, natural gas, elaterite, ozocerite, and other hydrocarbons (whether the same be found in solid, semi-solid, liquid, vaporous, or any other form) including tar, bitumen, asphaltum, and maltha, and other gases. The oil, gas, and hydrocarbon category shall not include coal, oil shale, or gilsonite.

3. Oil Shale - shall include any sedimentary rock containing kerogen.

4. Coal - shall include black or brownish-black solid fossil fuel that has been subjected to the natural processes of coalification and which falls within the classification of coal by rank: I Anthracite, II Bituminous, III Sub-Bituminous, IV Lignitic.

5. Potash - shall include the chlorides, sulfates, carbonates, borates, silicates, and nitrates of potassium.

6. Phosphate - shall mean any phosphate rock containing one or more phosphate minerals such as calcium phosphate and shall include all phosphatized limestones, sandstones, shales, and igneous rocks.

7. Clay Minerals - shall include Kaolin, Bentonite, Ball Clay, Fire Clay, Fuller Earth, and clays or shales having unique characteristics giving the mineral deposit distinct and special value, such as Carbonaceous Shale, Humic Shale, and Baked Shale.

8. Limestone - shall include bedded sedimentary rock having a predominant composition of calcium carbonate or calcium magnesium carbonate.

9. Gemstone and Fossil - Agate, Amber, Beryl, Calcite, Chert, Coral, Corundum, Diamond, Feldspar, Garnet, Geodes, Jade, Jasper, Olivine, Opal, Pearl, Quartz, Septarian Nodules, Spinel, Spodumene, Topaz, Tourmaline, Turquoise, and Zircon; and Coquina, Petrified Wood, Trilobites, and Other Fossilized Flora and Fauna.

10. Gypsum - Alabaster, Anhydrite, Gypsite, Satin Spar, and Selenite.

11. Gilsonite.

12. Volcanic Material - shall include Volcanic Pyroclastic Material including Ash, Blocks, Bombs, and Tuff; and Volcanic Glass Material including Perlite, Pitchstone, Pumice, Scoria, and Vitrophyre.

13. Industrial Sands - Abrasive sands, Filler sands, Foundry Sands, Frac Sands, Glass Sands, Lime Sands, Magnetic Sands, Silica Sands, and other uncommon sands used in industrial applications.

14. Mineral Salts.

R850-20-300. Non-Classified Minerals.

A person may make application for and the agency may issue leases covering other minerals not included in R850-20-200 classifications. These leases are on terms and conditions as the agency finds to be in the best interest of the Trust Lands Administration.

R850-20-400. Close Association Minerals.

A mineral lease issued as to any category shall include other minerals found in a close association with the expressly leased minerals when the expressly leased minerals cannot reasonably be mined or removed separately.

R850-20-500. Mineral Estate Distinctions.

Common varieties of sand and gravel and volcanic cinder are not considered part of the mineral estate on Trust Lands Administration owned lands in Utah. These commodities are withdrawn from leasing and may only be obtained through a materials permit approved by the agency director. Materials permits are administered through the regional offices of the agency.

R850-20-700. Non-Contiguous Tracts.

A separate application is filed for each non-contiguous tract of land sought to be leased, unless all of the tracts sought to be leased fall entirely within a single township.

R850-20-800. Size of Leasable Tract.

Except for good cause shown, no mineral lease is issued for a tract less than a quarter-quarter section or surveyed lot, except where the land owned by the Trust Lands Administration within any quarter-quarter section or surveyed lot is less than the whole thereof, in which case the lease will be issued only on the entire area owned and available for lease within the quarter-quarter section or surveyed lot.

R850-20-900. Lease Acreage Limitations.

Mineral leases are limited to no more than 2,560.00 acres or four sections.

R850-20-1000. Rentals and Royalties.

1. Rentals

(a) Rental for the first lease year is at the rate of $1 per acre, or fractional part thereof, per annum, regardless of percentage of Trust Lands Administration ownership in any given acre of land. Subsequent rental paying dates shall be on or before the annual anniversary date of the effective date of the lease, the effective date of the lease being the first day of the month following the date on which the lease is issued.

(b) Any overpayment of advance rental occurring from mineral lease applicant's incorrect listing of acreage of lands described in the application, may, at the option of the agency, be credited toward the applicant's rental account.

(c) Minimum annual rental on any mineral lease is $20.

(d) The agency shall accept lease payments made by any party, but the acceptance of lease payments shall not be deemed to be a recognition of any interest of the payee in the lease.

2. Royalty Provisions

The following production royalty rates shall apply to all classified mineral leases, as listed in R850-20-200, issued on or after the effective date of the applicable adjusted royalty rate. Mineral leases entered into prior to the effective date of adjusted royalty rates shall retain the royalty rate as specified in the lease agreement. The board shall review production royalty rates on a timely basis and shall adjust rates when in the best interest of the trust. Production royalty rates for non-classified minerals shall be established by the board as the need arises.

(a) Royalty rates on substances under oil, gas, and hydrocarbon leases.

TABLE

Oil    12-1/2%      -   Sulfur        12-1/2%

Gas    12-1/2%      -   Other hydrocarbon substances
                                     
6-1/4% (1)



     (1)  During the first ten years of production and

increasing annually thereafter at the rate of 1% to a maximum

of 16-2/3%.

(b) Royalty rates on mineral commodities, coal, and solid hydrocarbons.

TABLE

Coal             8%   Phosphate                        5%

Oil Shale (1)    5%   Potash and Associated Minerals   2%

Asphaltic/Bituminous  Gypsum                           5%

Sands (2)       7%

Gilsonite       10%   Clay                             5%

Met. Minerals:        Geothermal Resources            10%

Fissionable     8%   Limestone                        5%

 Non-Fissionable 4%

Gemstone/Fossil(3)    Volcanic Materials               5%

                10%

Salt (Sodium          Industrial sands                 5%

  chloride)      3%



     (1)  5% during the first five years of production and

increasing annually thereafter at the rate of 1% to a maximum

of 12-1/2% (providing that the first lessee to commercially

produce oil shale on Trust Lands Administration lands shall be

exempted from royalty payment on the first 200,000 barrels

within a 12 month period).  (See R850-20-3500.)

     (2)  May be escalated after the first five years of

production at the rate of 1% per annum to maximum of 12-1/2%

at lessor's discretion.

     (3)  Requires payment of annual minimum royalty of $5

per acre.

(c) Notwithstanding the terms of oil, gas, and hydrocarbon lease agreements, gas and natural gas liquid reports, and their required royalty payments, are required to be received by the agency on or before the last day of the second month succeeding the month of production. This extension of payment and reporting time for gas and NGL does not alter the payment and reporting time for oil and condensate royalty which must be received by the agency on or before the last day of the calendar month succeeding the month of production, as currently provided in the lease form.

(d) Any gilsonite lessee may petition the agency to amend its state gilsonite lease as to "Article VI, Payment of Rentals and Royalties", paragraph, SECOND, with the following provision:

SECOND: Lessee shall pay a production royalty on the basis of a percentage of the market price, including all bonuses and allowances received by lessee, f.o.b. the nearest point of sale of the first marketable product or products produced from the leased substances and sold under a bona fide contract of sale, whether or not the product or products are produced through chemical or mechanical treating or processing of the leased substances raw material. It is expressly understood and agreed that none of lessee's mining, or product costs, including material costs, labor costs, overhead costs, distribution costs, or general and administrative costs may be deducted from market price f.o.b. the point of sale in computing lessor's royalty. All costs shall be entirely borne by lessee and are anticipated by the rate of royalty assigned in his agreement. The royalty shall be 12-1/2% of the market price, as defined above, except where the thickness of the vein is less than 24 inches, in which case the royalty shall be as follows:

TABLE

                 Vein Size                Royalty Rate



      From 23.9 inches to 21.0 inches          8%

      From 20.9 inches to 18.0 inches          5%

      Less than 18 inches                      3%

Where lessee is claiming a vein width less than 24 inches, he shall be required to measure the width of the vein in the course of mining every 20 feet on each level, and each quarter shall submit a statement, signed and attested to by the lessee, giving the tonnage mined during said quarter, the average width of the vein mined during that quarter, and showing on a suitable plat, the location and width of the measured locations. Lessor shall have the right to require that the vein width measurements and quarterly statement be performed and prepared by a certified professional engineer employed by and at the sole expense of lessee. Further, lessee agrees to the following special stipulations regarding the royalty rate provision contained in this lease.

i) This royalty rate provision shall be subject to review in five years from the date of this amendment, at which time the lessor may make any reasonable changes in the provision as may be deemed to be in the best interest of the Trust Lands Administration.

ii) At the time of review of the original lease or of this royalty provision, the lessee shall provide the lessor, at no cost, on a proprietary basis, all of lessees information and documentation regarding sales, costs of production, and ore prices, for all gilsonite mined under this lease.

R850-20-1100. Rental Credit.

The rental paid for the lease year shall be credited only against the production royalties as they accrue for that lease year.

R850-20-1200. Record of Application and Deficient Applications.

Applications for mineral leases, except in the case of simultaneous filing, are received for filing in the office of the agency during office hours. Except as provided, all the applications received, whether by U.S. Mail or by personal delivery over the counter, are immediately stamped with the exact date and time of filing. All applications presented for filing at the opening of the office for business on any business day are stamped received as of 8 a.m., of that day. In the same manner, all applications received in the first delivery of the U.S. Mail of each business day is stamped received as of 8 a.m., of that day. The time indicated on the time stamp is deemed the time of filing unless the agency director shall determine that the application is materially deficient in any particular or particulars. If an application is determined to be deficient, it is returned to the applicant with instructions for its amendment or completion.

If the application is resubmitted in satisfactory form within 15 days from the date of the instructions, it shall retain its original filing time. If the application is resubmitted at any later time, it is deemed filed at the time of resubmission.

R850-20-1300. Order of Filing Conflict.

Except in cases of simultaneous filing, in the event that two or more applications for the same land bear a time stamp showing the said applications were filed at the same time, then the agency shall determine which applicant is awarded a lease by public drawing.

R850-20-1500. Minimum Bid/Simultaneous Filing.

The bid shall at least equal the rental rate for the substance to be leased and shall be the rental for the first year of the lease.

R850-20-1600. Posting Dates/Simultaneous Filing.

Notices of the offering of lands for simultaneous filing will run for 15 working days and are posted at times to insure that all bid openings are on the last Monday of that month.

R850-20-1700. Sealed Envelopes/Simultaneous Filing.

Applications shall be submitted in sealed envelopes marked for simultaneous filing.

R850-20-1800. Application Refund.

If application, or any part thereof, is rejected, money tendered for rental or rejected portion may be refunded or credited.

R850-20-1900. Application Withdrawal.

Should an applicant desire to withdraw his application, the applicant must make a written request. If the request is received prior to the time the agency approves the application, all money tendered by the applicant, except the filing fee, is refunded. If the request is received after approval, then, unless the applicant accepts the offered lease, all money tendered is forfeited to the trust, unless otherwise ordered by the board for good cause shown.

R850-20-2000. Application Withdrawal Under Simultaneous Filing.

Applicants desiring to withdraw an application which has been filed under the simultaneous filing rules, must make a written request. If the request is received before sealed bids for rental have been opened, all money tendered by the applicant, except the filing fee, is refunded. If the request is received after sealed bids for rental have been opened, and if the applicant's rental offer is high, then unless the applicant accepts the offered lease, all money tendered is forfeited to the Trust Lands Administration, unless otherwise ordered by the board for good cause shown.

R850-20-2100. Failure of Trust's Title.

Should it be found necessary to reject an application or to terminate an existing lease, excepting applications or leases approved through simultaneous leasing procedure, due to failure of trust's land title, then only advance rental paid for the year in which title failure is discovered is refunded. All other advance rentals and fees paid on the application or lease are forfeited to the Trust Lands Administration.

R850-20-2200. Lease Provisions.

In order to affect the purposes of development of mineral resources owned by the Trust Lands Administration, the following provisions, terms and conditions shall apply to all mineral lessees/leases:

1. Preference Rights for Unleased Minerals--Any mineral lessee who discovers any minerals on lands leased from the Trust Lands Administration which are not included within his lease shall have a preference right to a mineral lease covering these unleased minerals, provided the unleased minerals at the time of discovery are not included within a mineral lease or mineral lease application of another party. The preference right lease is issued upon a lease form in current use by the state of Utah. The preference right lease is subject to the rental, royalty, and development requirements as provided in the lease form. The preference right shall not extend to any unleased minerals which have been withdrawn from mineral leasing. The preference right shall continue for a period of 60 days after the discovery of unleased minerals, provided the applicant notifies the agency within the ten days after the discovery and makes application to lease the unleased minerals within 60 days after the date of discovery.

2. Lease Term Exclusion--If drilling operations are being diligently pursued on the leased premises at the end of the term, including any valid extension of any oil and gas lease, the term of the lease shall automatically extend for a term of two additional years. Upon written application by lessee and satisfactory showing of due diligence in prosecution of drilling operations, an extension rider is issued by the agency. Application for extension rider shall be filed by the lessee within 30 days prior to expiration of the fixed term of any valid extension of the lease.

3. Cultural, Paleontological, and Biological Resources--The agency may require the lessee to:

(a) provide a cultural, paleontological or biological survey on lands under mineral lease; and

(b) be responsible for reasonable mitigative actions as specified by the agency. Surveys conducted in performance for another state or federal agency may be submitted to the agency when the survey is also required by the agency.

4. Geologic Data--Lessee or operator shall keep a log of geologic data accumulated or acquired by lessee within the land area described in the lease. This log shall show the formations encountered and any other geologic information reasonably required by lessor and shall be available upon request by the agency. A copy of the log, as well as any data related to exploration drill holes, shall be deposited with the agency upon termination of the lease.

5. Assignments, Subleases and Overriding Royalties

(a) Definitions--

i) total assignment: an assignment of undivided total interest.

ii) interest assignment: an assignment of any working interest less than the undivided total, except overriding royalty interests.

iii) partial assignment: an assignment of part of the lands in a lease and a segregation of the assigned lands into a separate lease.

(b) Any mineral lease may be assigned or subleased as to all or part of the acreage, to any person, firm, association, or corporation qualified to hold a lease, provided, however, that all assignments and subleases are approved by the board or by the agency. No assignment or sublease is effective until approval is given. Any assignment or sublease made without approval is void.

i) The director shall not withhold approval of any transfer of interest which has been properly executed, the required filing fee is paid for each separate lease in which an interest is transferred, and the transfer appears to comply with the law and these rules, unless the director determines that approval would interfere with the development of the subsurface resources, or otherwise be detrimental to the interests of the trust beneficiaries.

ii) If approval of any transfer is withheld by the director, the transferee shall be notified of such decision, and the reason(s) therefor, and as appropriate advise the transferee of what action is necessary to secure approval. Any decision to withhold approval may be appealed pursuant to Rule R850-9 or any similar rule in place at the time of such decision.

(c) Unless otherwise authorized by the agency, an assignment of a portion of a lease covering less than a quarter-quarter section, a surveyed lot, an assignment of a separate zone, or a separate deposit is not approved.

(d) An assignment or sublease shall take effect the first day of the month following the approval of the assignment or sublease by the board, or by the agency. The assignor or sublessor or surety, if any, shall continue to be responsible for performance of any and all obligations as if no assignment or sublease had been executed until the effective date of the assignment or sublease. After the effective date of any assignment of sublease, the assignee or sublessee is bound by the terms of the lease to the same extent as if the assignee or sublessee were the original lessee, any conditions in the assignment to the contrary notwithstanding.

(e) A partial assignment of any lease shall segregate the assigned or retained portions thereof and, after the effective date, release or discharge the assignor from any obligation thereafter accruing with respect to the assigned lands. Segregated leases shall continue in full force and effect for the primary term of the original lease or as further extended pursuant to the terms of the lease.

(f) An assignment or transfer of a lease, interest herein, or of an overriding royalty must be a good and sufficient legal instrument, properly executed and acknowledged, and should clearly set forth the serial number of the lease, the land involved, and the name and address of the assignee, and the interest transferred.

(g) An assignment must affect or concern only one lease or a portion thereof, except for good cause shown.

(h) Any assignment which would create a cumulative overriding royalty in excess of the production royalty payable to the Trust Lands Administration as landowner will not be approved by the agency. Any agreement to create or any assignment creating overriding royalties or payments out of production removed or sold from the leased lands is subject to the board, after notice and hearing, to require the proper parties thereto to suspend or modify the royalties or payments out of production in such a manner as may be reasonable when and during such period of time as they may constitute any undue economic burden upon the reasonable operations of this lease.

(i) Assignment instructions are as follows:

i) Prepare and execute the assignments in duplicate, complete with acknowledgments.

ii) Each copy of the assignment shall have attached thereto an acceptance of assignment duly executed by the assignee.

iii) All assignments forwarded to or deposited with the agency must be accompanied by the prescribed fee.

(j) If an applicant or lessee dies, his/her rights shall be transferred to the heirs, devisees, executor or administrator of the estate, as appropriate, upon the filing of a death certificate together with other appropriate documentation as may be required to verify change of ownership, and a list, by serial number of all lease interests affected and a statement that all parties are qualified to do business with the agency. The required filing fee must be paid for each separate lease in which an interest is transferred. A bond rider or replacement bond may be required for any bond(s) previously furnished by the decedent.

(k) If a corporate merger affects mineral leases where the transfer of property of the dissolving corporation to the surviving corporation is accomplished by operation of law, no transfer of any affected lease is required. A notification of the merger shall be furnished with a list, by serial number of all lease interests affected. The required filing fee must be paid for each separate lease in which an interest is transferred. A bond rider or replacement bond conditioned to cover the obligations of all affected corporations may be required by the director as a prerequisite to recognition of the merger.

(l) If a change of name of a lessee affects mineral leases the notice of name change shall be submitted in writing with appropriate documentation evidencing the name change accompanied by a list of leases affected by the name change. The required filing fee must be paid for each separate lease in which an interest is transferred. A bond rider or replacement bond to accommodate name change, conditioned to cover the obligations of all affected corporations may be required by the director as a prerequisite to recognition of the change of name.

6. Lease Amendments--When the board approves the amendment of existing mineral leases by substituting a new lease form for the existing form(s), the amended lease will retain the effective date of the original lease.

R850-20-2300. Lessee Rights.

Lessee rights subject to the following provisions:

1. Mineral exploration, oil and gas drilling, or other operations which disturb the surface of lands contained within or above the mineral lease lands require surface rehabilitation of the disturbed area as approved by the agency, and as required by the laws administered by the Utah Division of Oil, Gas and Mining listed under paragraph (2) of this section.

In all cases, the lessee must agree to slope the sides of all excavations to a ratio not steeper than one foot vertically for each two feet of horizontal distance, unless otherwise approved by the agency prior to commencement of operations. This sloping shall be a concurrent part of the operation of the leased premises to the extent that the operation shall not at any time constitute a hazard. Wherever practicable, all pits or excavations shall be shaped to facilitate drainage and control erosion; and in no case shall the pits or excavations be allowed to become a hazard to persons or livestock. All material mined, but not removed from the premises, shall be used to fill the pits and leveled, unless consent of the agency to do otherwise is obtained, so at the termination of the lease, the land will as nearly as practicable approximate its original configuration. All drill holes must be plugged in accordance with rules promulgated by the Division of Oil, Gas and Mining.

The agency may require that all topsoil in the affected area be removed, stockpiled, and stabilized on the leased premises until the completion of operations. Upon reclamation, the stockpiled topsoil will be redistributed on the affected area and the land revegetated as prescribed by the agency. All mud pits shall be filled and materials and debris removed from the site.

2. All lessees and operators shall comply with the following laws, as appropriate, which are administered by the Utah Division of Oil, Gas and Mining: for oil and gas and related operations, The Oil and Gas Conservation Act (Section 40-6-1 et seq.); for non-coal mining or exploration operations, The Utah Mined Land Reclamation Act (Section 40-8-1 et seq.); and for coal mining or exploration, The Coal Mining Reclamation Act (Section 40-10-1 et seq.).

R850-20-2400. Operations Notification Period.

1. At least 60 days prior to the commencement of mineral exploration, mining or other operations which disturb the surface of lands contained within or above a mineral lease, lessee shall submit plans for operations to the School and Institutional Trust Lands Administration. The agency shall review and make an environmental assessment and endorse or stipulate changes in lessee's plan of operation within the review period. Where feasible, the agency's review shall be conducted concurrently with those of other agencies. Review by another state or federal agency may be accepted by the agency in lieu of a separate agency review. Following review, the agency may require the lessee to adopt a special rehabilitation program required by lessor for the particular property in question. Lessee shall not commence operations upon the land without a plan of operation approved by the agency.

2. Before any operator or lessee shall commence actual drilling operations of any well or prior to commencing any surface disturbance associated with the activity on lands contained within a mineral lease, the operator or lessee shall simultaneously file with the agency a legible copy of the application for permit to drill (APD), as is filed with the Division of Oil, Gas, and Mining.

The agency will review any request for drilling operation and will grant approval, providing that the contemplated location and operations are not in violation of any rules, order, or policy of the School and Institutional Trust Lands Board of Trustees. Agency approval of the application for permit to drill on mineral resources administered by the School and Institutional Trust Lands Administration is required prior to approval by the Division of Oil, Gas, and Mining. Notice of approval by the School and Institutional Trust Lands Administration will be given in an expeditious manner to the Division of Oil, Gas, and Mining.

3. All lessees or designated operators under mineral leases have responsibility to be aware of notification requirements and operating rules promulgated by the Division of Oil, Gas and Mining with regard to mineral exploration, mining, or oil and gas drilling on lands within the state of Utah. Lessees or operators shall fully comply with all the rules or requirements and provide timely notifications, mine plans, well completion reports, or other information as may be requested.

R850-20-2500. Multiple Mineral Development (MMD) Area Designation.

1. The board may designate any land under its authority as a multiple mineral development area. In designated multiple mineral development areas the board may require, in addition to all other terms and conditions of the mineral lease, that the lessee furnish a bond or evidence of financial responsibility as specified by the board, to assure that the Trust Lands Administration and other mineral lessees shall be indemnified and held harmless from and against unreasonable and all unnecessary damage to mineral deposits or improvements caused by the conduct of the lessee on Trust Lands Administration lands. Written notice shall be given to all mineral lessees holding a mineral lease within the multiple mineral development area. Thereafter, in order to preserve the value of mineral resources the agency may impose any reasonable requirements upon any mineral lessee who intends to conduct any mineral activity within the multiple mineral development area. The lessee is required to submit advance written notice of any activities to occur within the multiple mineral development area to the agency and any other information that the agency may request. All activities within the multiple mineral development area are to be deferred until the agency has specified the terms and conditions under which the mineral activity is to occur and has granted specific permission to conduct the activity. The agency may hold public meetings regarding the mineral development within the multiple mineral development area.

2. The board may grant a mineral lease extension under a multiple mineral development area designation, providing that the mineral lessee or operator requests an extension to the board prior to the lease expiration date, and that the lessee or operator would have otherwise been able to request a lease extension as provided in Section 53C-2-405(4).

R850-20-2600. Term of Mineral Lease.

The term of all mineral leases included in any cooperative or unit plan of oil and gas development or operation in which the agency has joined, or shall hereafter join, shall be extended automatically for the term of the unit or cooperative agreement. Rentals on leases so extended shall be at the rate specified in the lease, subject to the change in rates as may be demanded by the lessor on any lease readjustment date as authorized by the lease.

R850-20-2700. Lease Continuation.

Any lease which shall be eliminated from any such cooperative or unit plan of development or operation, or any lease which shall be in effect at the termination of the cooperative or unit plan of development or operation, unless relinquished, shall continue in effect for the fixed term of the lease, or for two years after its elimination from the plan or agreement or the termination thereof, whichever is longer, and so long thereafter as the leased substances are produced in paying quantities. Rentals under such leases shall continue at the rate specified in the lease.

R850-20-2800. Bonding.

1. Prior to commencement of any operations on a mineral lease, the lessee or designated operator shall post with the agency a bond in the form and amount as may be determined by the agency to assure compliance with all terms and conditions of the lease.

2. The bond required for an oil and gas, geothermal, or minerals exploration project shall be:

(a) a statewide blanket bond in the minimum amount of $80,000 covering exploration operations on all Trust Lands Administration mineral leases held by lessee which shall be in an amount at least equal to the accumulative amount of individual project bonds as set forth below; or

(b) a project bond covering an individual exploration project involving one or more mineral leases. The amount of the project bond will be determined by the agency at the time lessee gives notice of proposed operations. This bond will not be less than $5,000 per acre of surface disturbance, or in the case of an oil and gas or geothermal well:

TABLE

     WELL DEPTH                    BOND AMOUNT



      0- 3,000 ft.                 $10,000

  3,000-10,000 ft.                  20,000

  Greater than 10,000 ft.           40,000

3. The bond required for construction and operation of a mine or minerals production plant shall be determined by the agency on basis of an approved mining and reclamation plan or plan of development and operations. This bond may be posted with the Division of Oil, Gas and Mining providing written consent is first obtained from the School and Institutional Trust Lands Administration. Existing project bonds on the same lease(s) may be incorporated into this mine or minerals production plant bond.

4. All bonds posted on mineral leases may be used for payment of all monies, rentals, and royalties, due the Trust Lands Administration as lessor; including:

(a) costs of reclamation, damages to the surface and improvements thereon, and any other costs which arise by operation of the lease and accrue to the lessor.

(b) lessee's compliance with all other terms and conditions of the lease, rules, and policies relating thereto of the Board of Trustees, School and Institutional Trust Lands Administration, Board of Oil, Gas, and Mining, and Division of Oil, Gas, and Mining.

This bond shall be in effect even if the lessee or designated operator has conveyed all or part of the leasehold interest to a sublessee(s), assignee(s), or subsequent operator(s), until the bond may be released by the lessor, or until the lessee or designated operator fully satisfies the above-described obligations, or until the bond is replaced with a new bond posted by a sublessee, assignee, or new designated operator.

5. Bonds may be accepted in any of the following forms at the discretion of the agency:

(a) Surety bond with an approved corporate surety registered in Utah.

(b) Cash deposit. The Trust Lands Administration will not be responsible for any investment returns on cash deposits.

(c) Certificate of deposit in the name of "School and Institutional Trust Lands Administration and lessee, c/o lessee's address", with an approved state or federally insured banking institution registered in Utah. The certificate of deposit must have a maturity date no greater than 12 months, be automatically renewable, and be deposited with the agency. The lessee will be entitled to and receive the interest payments. All certificates of deposit must be endorsed by the lessee prior to acceptance by the director.

(d) Other forms of surety as may be acceptable to the School and Institutional Trust Lands Administration.

6. Any lessee or designated operator forfeiting a bond is denied approval of any future exploration or mining on Trust Lands Administration lands, except by compensating the Trust Lands Administration for previous defaults and posting the full bond amount estimated for reclamation or lease performance and reclamation on subsequent operations.

7. Bonds may be increased at any time in reasonable amounts as the School and Institutional Trust Lands Administration may order, providing lessor first gives lessee 30 days written notice stating the increase and the reason for the increase.

8. The agency shall waive the filing of a bond for any period during which a bond meeting the requirements of this section is on file with another agency.

R850-20-2900. Mineral Lease Conversion.

1. Oil, gas, and hydrocarbon leases include mineral substances formerly leased by the Trust Lands Administration under at least two separate mineral categories, oil and gas and asphaltic sands - bituminous sands. As to some of the lands, there is presently one or more leases outstanding or covering these mineral categories. It is the intention of the board to effect a gradual conversion of these outstanding leases to a single oil, gas, and hydrocarbon lease form and to effect this conversion in such a way as to not impair or diminish any vested rights, while at the same time attempting to gain the greatest overall return from the management of the Trust Lands Administration lands involved.

2. Where Trust Lands Administration lands are presently covered by either: (1) an asphaltic sands - bituminous sands lease where the oil and gas rights have not been withdrawn from leasing by the order of the board on October 12, 1965; or (2) oil and gas lease issued by the state of Utah, the holder of the lease may upon application and approval by the director, exchange the asphaltic sands - bituminous sands lease or oil and gas lease for an oil, gas, and hydrocarbon lease. The term of the oil, gas, and hydrocarbon lease where an oil and gas lease is converted, is for the remaining term of the oil and gas lease, plus two years. The term of the oil, gas, and hydrocarbon lease where an asphaltic sands - bituminous sands lease is converted is for the remaining term of the lease.

3. Where Trust Lands Administration lands are covered by both oil and gas lease and an asphaltic sands - bituminous sands lease, and one of these leases is cancelled, expires, or is terminated for any reason, then the surviving lessee may exchange his lease for an oil, gas, and hydrocarbon lease. The term of the oil, gas, and hydrocarbon lease, where an oil and gas lease is converted, shall be for the remaining term of the oil and gas lease, plus two years. The term of the oil, gas, and hydrocarbon lease, where an asphaltic sands - bituminous sands lease is converted, shall be for the remaining term of the lease. This conversion right shall expire 60 days from the date of notification of the surviving lessee of his privilege of conversion.

4. Where Trust Lands Administration lands are covered by an oil and gas lease and an asphaltic sands - bituminous sands lease, the board will, on written application, permit a conversion to the oil, gas, and hydrocarbon lease by an applicant who has acquired control of the leasehold rights in the outstanding oil and gas lease and the asphaltic sands - bituminous sands lease.

R850-20-3400. Geothermal Steam Leases.

Geothermal steam resources contained in or under lands of the Trust Lands Administration are reserved to the Trust Lands Administration and shall be sold only upon a lease and royalty basis. Applications shall be made upon forms provided by the agency and shall be subject to all applicable minerals management statutes and rules and the following provisions:

1. Geothermal steam leases are issued only on lands where the Trust Lands Administration owns both the surface and mineral rights, unless lessee agrees to accept as part of his lease agreement the "Addendum to Geothermal Steam Lease and Agreement", adopted by the board on March 20, 1974.

2. Lessee shall file the required bond prior to the commencement of any operations on lands of the Trust Lands Administration.

R850-20-3500. Oil Shale, Bituminous Sands Development--Procedures of Claim.

The first lessee of the Trust Lands Administration to commercially produce oil from oil shale or bituminous sands on lands owned by the Trust Lands Administration is exempted from the payment of any royalty on the first 200,000 barrels of oil commercially produced. To claim this exemption, the lessee shall make a written application to the board for a hearing to determine the validity of lessee's claim. The application shall specify the lease number, location, and type of the production facilities and date on which production commenced, and evidence of marketing agreement to dispose of the oil so produced.

The board shall fix a hearing date within 90 days from the date of filing the application. Notice of the hearing shall be furnished by United States Mail, postage prepaid, to all interested lessees; and notice of the hearing shall be published in a newspaper having general circulation in the state. The notice shall be furnished, and so published, at least 30 days prior to the hearing. Any other lessee asserting a right to an exemption prior to the applicant's, shall file written notice thereof with the board at least 15 days prior to the hearing and shall serve copies of the notice upon all other lessees asserting a claim. The hearing shall be conducted in accordance with the provisions of R850-8-400 and the board shall enter written findings and an order of exemption.

R850-20-3800. Option To Modify 1981 Form Oil, Gas, and Hydrocarbon Leases.

1. Provided the lessee agrees in writing, any oil, gas, and hydrocarbon lease written on a 1981 form, or any subsequent form with the same minimum royalty requirement, is amended in the following manner:

(a) Under Section 2(d) of the lease the amount of minimum royalty is changed to $1 per acre, if pursuant to Section 2(c) of the lease, diligent operations conducted by the lessee after the expiration of the primary term includes:

i) the actual commencement of drilling operations on all or a portion of the leased premises, or

ii) the commitment by the agency of all or a portion of the leased premises to a pooling, communitization or unit agreement which has been approved by the Trust Lands Administration, and the federal government if federal lands are within the boundaries of the agreement.

(b) A refund of the difference between the amount paid under the original terms of the lease and this amendment will be paid to a lessee who requests the refund in the lease year the amount was due.

(c) At the option of the lessee, the lease shall be converted to a new lease form which the agency shall provide at a later date. Certain provisions of the 1981 form, or any subsequent form with the same minimum royalty requirements, will be clarified under the new form. The rental, royalty, and minimum royalty will not be increased. The change will not affect the ten year primary term of the lease, or the continuation of the lease past the primary term if production royalty is attributable to the leased premises, or if the diligent operations as listed above under Subsection 1.(a)(i) or (ii) are being conducted.

(d) This amendment shall terminate 60 days after the new lease form is offered to the lessee. If the lessee does not elect to take the new lease form the original terms of the lease shall again be in effect.

R850-20-3900. Primary Term of Mineral Leases.

The primary term of oil shale and tar sand leases shall not exceed 20 years. The primary term of all other mineral leases shall not exceed ten years.

R850-20-4000. Readjustment Rule.

1. Any lease, except an oil, gas and hydrocarbon lease, which is subject to a readjustment provision may be readjusted as follows:

(a) Any term or condition of a lease may be readjusted including the rent, royalty, minimum rental, or minimum royalty provisions of the lease.

(b) The agency shall give notice to the lessee at least one year prior to readjustment. Failure to give notice prior to a date a lease is eligible for readjustment shall not waive or prejudice the right of the agency to readjust the lease at a later date.

(c) The readjusted terms shall become effective on the date specified by the agency at the time the readjusted terms are sent to the lessee.

(d) The readjusted terms will conform with the current lease form, at the time of the readjustment, and all existing laws and rules, unless expressly provided otherwise.

(e) Failure of the lessee to accept the terms of any readjustment shall be considered a violation of the provisions of the lease and shall subject the lease to forfeiture.

2. In the event of a conflict between this section and the terms of a readjustment provision in a lease, the lease terms shall supersede to the extent of the conflict.

KEY: royalties, coal, primary term*, administrative procedure

March 3, 1999

Notice of Continuation June 27, 2002

53C-1-302(1)(a)(ii)

53C-2-201(1)(a)

53C-2-401(1)(d)(ii)

53C-2-402(1)

53C-2-407(4)]

ADDITIONAL INFORMATION

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For questions regarding the content or application of this rule, please contact LaVonne Garrison at the above address, by phone at 801-538-5100, by FAX at 801-355-0922, or by Internet E-mail at lavonnegarrison@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.