must be executed on Form 4-1196 and must be accompanied by a statement showing whether the offeror owns the entire operating rights to the fractional mineral interest not owned by the United States in each tract covered by the offer to lease, and if not, the extent of the offeror's ownership in the operating rights in each tract, and the names of other parties who own operating rights in such fractional interests. Ordinarily, the issuance of a lease to one who, upon such issuance, would own less than a majority interest of the operating rights in any such tract, will not be regarded as in the public interest, and an offer leading to such result will be rejected.

In addition, item 2 of the Special Instructions on the reverse side of form 4-1196, which both offerors filed, states:

*** In instances where the United States does not own a 100-percent interest in the oil and gas deposits in any particular tract, the offeror should indicate the percentage of Government ownership. In such cases the offeror must also furnish the information required by 43 CFR 200.7 (d).

The facts of the case, which are undisputed, are that on October 21, 1955, the appellant filed his offer to lease the undivided 75 percent mineral interest owned by the United States in nine tracts of land located in Garrett County, Maryland. In an attachment to his application the appellant stated:

2. Land requested.

The lands desired are identified in accordance with a survey made by the United States prior to the acquisition of each such tract of land as shown on the official status map for the project, LU-Md.-38-2, Garrett County, Maryland, on file with the Forest Service, Department of Agriculture, Washington, D.C. These lands, which are part of the Savage River State Forest, and in which the United States has only reserved a 75% interest in the mineral deposits, total approximately 2491.25 acres, and are described as follows:

5. (b) The United States no longer owns the surface of the land, but see answer to 2. for other details.

Subsequently, on August 15, 1958, a letter was received from the appellant which he requested be made a part of his original offer, stating

To clarify the statements in the offer, the following information is furnished: The State of Maryland owns, by conveyance from the United States, the fee title to the surface and to 25% of the minerals. It has issued no lease for the oil and gas deposits in any of the tracts covered by the offer. It is understood that it will issue such a lease only to the holder of the lease issued by the United States for the same tracts.

This information is being supplied pursuant to 43 CFR 200.7 (d), to show the offeror's interest in the operating rights to the mineral interest in the various tracts, other than that of the United States.

Meanwhile on May 15, 1958, the Cumberland and Allegheny Gas Company filed a lease offer, BLM-A 046863, for the three-quarter oil and gas interest owned by the United States in four of the tracts em

October 19, 1960

braced in the appellant's offer and in one other tract. Cumberland's offer stated that the surface and a one-quarter undivided interest had been conveyed to the State of Maryland by a deed dated December 24, 1954. It also filed as part of its offer, a letter dated May 6, 1958, from Cumberland to the Chief, Forest Service, United States Department of Agriculture, which, in part, read:

4. The surface and an undivided 4 interest in the oil and gas underlying the premises in the attached offer to lease agreement, to the best of my knowledge and belief, is presently owned by the State of Maryland for the use of the Department of Forests and Parks, subject to certain rights of the United States of America as reserved in a deed dated December 20, 1954, from the United States of America acting by and through the Assistant Secretary of Agriculture given to the aforesaid State of Maryland for the use of the Department of Forests and Parks.

The remaining 4 undivided interest in the minerals and mining rights reserved by the United States of America in the above deed insofar as they may affect the surface in connection with only mining, saving and removing of the same therefrom are administered by the Forest Service of the United States Department of Agriculture as part of the Garrett County Land Utilization Project.

On October 6, 1959, while Liss' appeal was pending before the Director, Cumberland filed a letter designated as a "Clarifying Statement" which read in part:

The offeror in BLM-A 046863 respectfully submits, subject to the conditions set out above, the following clarifying statement to supplement the original statements made in Item 2, Supplements 1 and 2, and for numbered paragraph 4 of the corporate statement attached to BLM-A 046863.

"The ownership of the operating rights to all the undivided one-fourth part of all the oil and gas owned by the State of Maryland underlying the acreage included in this Offer to Lease, is also vested in the State of Maryland, expressly subject, however, to any and all rights of every kind and nature that were and are later determined to have been reserved by the United States in that certain deed from the State of Maryland, referred to in the statement made in Item 2, on page 2 of Supplement 1 of this offer as originally filed.

"This clarifying statement above as to operating rights is made expressly subject to any later determination being made that the actual legal effect of all the language contained in the above deed, when read as a whole with the reservations and determinable fee created thereby, would be to vest any part or all of the above operating rights to the undivided one-fourth part of all the oil and gas minerals underlying the acreage described in such offer, in the United States." In its decision the Eastern States Office pointed out that the regulations in effect at the time both offers were filed provided that a statement must be filed concerning the ownership of the operating rights to the fractional mineral interest not owned by the United States and that inasmuch as the appellant did not file the required statement until August 15, 1958, and the company had attached the required statement to its offer filed May 5, 1958, the company's offer had priority.

On appeal the Director held that Liss' original statement was defective because it did not state who held the present operating rights in the State's fractional interest, that Liss' statement of August 15, 1958, corrected the deficiency, but that Cumberland's offer was entitled to priority from May 15, 1958, its date of filing.

In his appeal to the Secretary, Liss contends Cumberland's offer as originally filed did not meet the requirements of the regulation, that if it did, his original offer also did, and that in any event, his offer, as clarified by the statement of August 15, 1958, is the first offer to satisfy the regulation.

In reply, Cumberland asserts that its original offer was proper, but that, if it is not so held, its statement of October 6, 1959, was the first statement to comply with the regulation.

The regulation, 43 CFR, 1954 ed., 200.7 (d), which provides that an application for fractional interest "must" be on form 4-1196 and "must" be accompanied by a statement of ownership of the outstanding mineral interest in others, is clearly mandatory and the Department has so held. Celia R. Kammerman et al., 66 I.D. 255 (1959); Duncan Miller, A-28168 (February 2, 1960). The Secretary is without authority to disregard the plain and unambiguous provisions of his own mandatory regulations where the rights of third parties have intervened. McKay v. Wahlenmaier, 226 F. 2d 35 (D.C. Cir. 1955); Chapman v. Sheridan-Wyoming Coal Company, 338 U.S. 621 (1950).

What does the regulation require? It demands only several simple direct statements from an offeror: that he does or does not own the entire operating rights to the fractional mineral interest not owned by the United States, and if he does not, the extent of his ownership in such operating rights and the names of other parties who own such operating rights. It does not ask for information as to ownership of the surface of the tract applied for or as to who the owner or lessee of the fractional mineral interest not owned by the United States may be. It does not ask for references to deeds or statutes or other documents in which some of the information may be set out; nor does it intimate that the offeror may submit statements as to the ownership of interests in the lands from which the Department may infer the information the regulation requires. It asks only for information concerning operating rights and the response should be direct and specific.

The issue then is to determine which of the offerors first complied with the pertinent regulation. Liss' original offer merely stated that the United States no longer owned the surface of the land, but had reserved a 75-percent interest in the mineral deposits. It did not state whether he owned any operating rights in the fractional interest

October 19, 1960

not owned by the United States or give the names of other parties owning such operating rights. Therefore it did not comply with one of the mandatory requirements of the regulation and earned Liss no priority.

Cumberland's original offer, which is next in time, said that the surface and an undivided one-quarter interest in the oil and gas had been conveyed to and are presently owned by the State of Maryland. However, it made no direct assertion that Maryland still owned the operating rights. Since a mineral owner can divest himself of operating rights without conveying his mineral interest, this statement also failed to satisfy the regulation and did not earn the offeror priority. The third attempt to submit the required information was Liss' "clarifying statement" in which he said that Maryland "owns * * * the fee title to *** 25% of the minerals" and that "It has issued no lease for the oil and gas deposits in any of the tracts covered by the offer." Here again the offeror has not made a direct assertion that the operating rights are owned by the State of Maryland. Instead he leaves it to the Department to draw such an inference from the information he provided. It, however, fails for the same reason that Cumberland's offer fell short, that is, an owner of a fractional interest in oil and gas deposits underlying certain tracts of land may dispose of the operating rights through some device other than a lease.

There remains only Cumberland's final "clarification" in which it made the direct statement that the ownership of the operating rights to all of the undivided one-fourth part of all the oil and gas deposits owned by Maryland “*** is also vested in the State of Maryland ***” This, of course, is a direct statement in terms of the regulation which meets the requirements of the regulation, and, all else being regular, earns the offeror priority as of October 6, 1959, the date on which it was filed. If a lease is to be issued, it must be issued to it. R. S. Prows, 66 I.D. 19, 22 (1959).

The appellant, however, also asserts that the company's offer is defective because it covers more than 2,560 acres.

At the time Cumberland filed its offer the Department's regulation, 43 CFR, 1954 rev., 200.8, provided in pertinent part:

(d) *** The offer must cover only lands entirely within a six-mile square, and must be for an area of not more than 2,560 acres, except where the rule of approximation applies.1

1 Paragraph (d) of the regulation was amended without material change by Circular 2017 (43 CFR, 1959 Supp., 200.8 (d)).

(g) (1) Except as provided in subparagraph (2) of this paragraph an offer will be rejected and returned to the offeror and will afford the applicant no priority

(ii) The total acreage exceeds 2,560 acres, except where the rule of approximation applies.

(2) An offer to lease containing any of the following deficiencies will be approved by the signing officer provided all other requirements are met:

(ii) An offer covering not more than 10 percent over the maximum allowable acreage of 2,560 acres. The lease will be approved for 2,560 acres in the discretion of the signing officer or so much over that amount as may be included under the rule of approximation.

The company's application, under Item 2 of the lease form headed "Land requested," stated that the "Total area" applied for was 2,7854 acres. The supplemental information attached to the application listed 5 tracts of land and the acreage of each tract. The total acreage of the tracts so listed was 2,7854 acres. At the conclusion of the statement relative to the ownership of the operating rights appeared the words "Total Area 2,088.94 acres (or 34 of 2,7854 acres)." The amount of advance rental paid when the application was filed was $1,044.47, which at 50 cents an acre is the required amount of advance rental for 2,088.94 acres. The appellant contends that the company's offer exceeded the maximum permissible acreage allowed in 200.8 (d) by a total of 22514 acres.

In answer to the appellant's charge, the Acting Director said in his decision:

Although the appellant contends that the Cumberland offer must be rejected because it describes more than 2,560 acres (43 CFR 200.8(g)(1)(ii)) and for that reason is not subject to approval under 43 CFR 200.8(g) (2) (ii), the fact remains that "where the United States owns only a fractional interest in the mineral resources of the lands involved, only that part of the total acreage involved in the lease which is proportionate to the ownership by the United States of the mineral resources therein shall be charged as acreage holdings." It follows that the offer, albeit describing approximately 2,785 acres, embraces a fractional interest area chargeable only as 4 thereof, a total acreage of but approximately 2,089 acres. This applied for acreage is properly described and included in the offer. * * *

The language quoted above in the Acting Director's decision is taken from 43 CFR, 1954 rev., 200.6. In pertinent part this regulation provides that the amount of acquired lands acreage that may be held under lease, either directly or indirectly, by an individual as a member of an association or corporation "may not be in excess of the amount