If a contractor desires to be recognized in connection with a permit, he must file his contract for approval and be charged with the interest covered thereby. It is not necessary for him to do this, so if he desires, he may explore the land under contract with the permittee; then if he wishes to be recognized as interested in the lease, he can bring his contract to the atten tion of the Department.
Upon the discovery of oil or gas within the time limit, the permittee is entitled to a lease for one-fourth of the land embraced in the permit, a minimum of not less than 160 acres being granted, if there be that amount of acres in the prospecting permit. The area is to be in compact form. If unsurveyed the applicant must secure the survey by the Government, and deposit the fees to cover the expense. This lease is for 20 years, upon a royalty of 5 per cent, and annual payment of one dollar per acre, to be applied on the payment of royalties. There is a preferential right in the lessee to renew the same for successive periods of 10 years upon such reas onable terms and conditions as may be prescribed by the Secretary of the Interior.
The permittee shall also be entitled to a preference right to a lease for the remainder of the land at a royalty of not less than 1234 per cent in amount or value of the production, the royalty to be determined by com petitive bidding or fixed by such other method as the Secretary may by regulations prescribe.
After discovery and until the permittee applies for a lease to the one quarter area he shall pay to the United States 20 per cent of the gross value of all oil or gas secured by him from the lands embraced within his permit and sold or otherwise disposed of or held by him for sale or other disposition.
If the area sought is within the boundaries of a known geological structure the right to a lease is sold to the highest bidder to qualified applicants in tracts not exceeding 640 acres in amount and in tracts which shall not ex ceed in length two and one-half times their width. If the average daily production of any oil well shall not exceed 10 bbls. per day, the Secretary of the Interior is authorized to reduce the royalty on future production when in his judgment the wells cannot be successfully operated upon the royalty fixed in the lease.
It must be remembered that rules and regulations fixed by the Secretary of the Interior are always subject to change at the discretion of that official.
Before leaving the subject of lands it may be worth while to give a little attention to the descriptions of lands.