Lease Bonus
The sum paid by a lessee to the lessor as consideration for granting a lease, as distinct from the rentals and royalties paid over the life of the lease.
Detailed Definition
A lease bonus is the money paid to the lessor for granting a lease. The U.S. Bureau of Mines Dictionary of Mining, Mineral, and Related Terms (1968) defines bonus, "As applied to an oil lease," as "a sum of money paid by a lessee to the lessor in consideration for the execution of a lease as distinguished from the return or royalty reserved by the lessor to be paid by the lessee through the term of the lease." The Office of Natural Resources Revenue (ONRR) glossary defines bonus as "The amount the highest bidder paid for a natural resource lease."
Bonus, rental, and royalty are separate payments
- The bonus is paid to obtain the lease.
- Rental is paid to hold the lease. ONRR defines rent as the "Annual amount due on leases as specified in lease terms."
- Royalty is a share of production (see Royalty Interest).
Federal competitive leasing
Federal onshore oil and gas leases are sold at competitive auction, and the bonus is the bid.
- 43 CFR 3100.5 defines a bid as "an amount of remittance offered as partial compensation for a lease equal to or in excess of the national minimum acceptable bonus bid set by statute or by the Secretary."
- 30 U.S.C. 226(b)(1)(A) directs the Secretary to "accept the highest bid from a responsible qualified bidder which is equal to or greater than the national minimum acceptable bid, without evaluation of the value of the lands proposed for lease."
- 30 U.S.C. 226(b)(1)(B): "The national minimum acceptable bid shall be $10 per acre during the 10-year period beginning on August 16, 2022." The fiscal terms table in 43 CFR 3103.1 lists "Minimum bonus bids of $10 per acre, or fraction thereof" for competitive oil and gas and tar sand leases, and $25 per acre for competitive combined hydrocarbon leases.
State lease example
State lease forms handle the bonus their own way. The Utah SITLA oil and gas lease form requires "a bonus payment of _____________, which includes the first year rental payment," and provides that if it is not paid by the stated date "this Lease will automatically expire and be of no further force or effect."
Why it matters in mineral title research
- The bonus goes to the party with the right to lease, so the lessor's ownership has to be established before a bonus is paid.
- The dictionary definition separates the bonus from "the return or royalty reserved by the lessor," so whether an owner's interest includes bonus, royalty, or both has to be read from the deed that created it (see Royalty Interest).
- On federal land, the lease sale record, not a private instrument, shows who acquired the lease and when.
Related Terms
Mineral Lease
A contract by which the owner of minerals grants another the right to explore for and produce them for a stated term, in exchange for payments such as bonus, rental, and royalty.
Royalty Interest
A share of production, or of its value, paid to a lessor or other royalty owner without bearing the costs of drilling and producing.
Primary Term
The fixed initial period of an oil and gas lease, during which the lease stays in force without production if its other terms are met.
Held by Production
Describes a lease that continues past its primary term because oil or gas is being produced in paying quantities from the lease or from lands pooled or unitized with it.