The Mineral Leasing Act of 1920: The law that changed Wyoming’s economic destiny
Reprinted with permission from WyoHistory.org. Not for republication by Wyoming media.

In 1922, Wyoming State Geologist Albert Barlett had the temerity to say that the mineral industry was more important to the state economy than either livestock or agriculture.

A number of events might have moved Bartlett to draw such a heretical conclusion. For starters, agriculture was having a tough time due to smoking hot weather and post-World War I deflation. Most importantly, crop, beef, lamb and wool prices had all plummeted after the war. In Fremont County, for example, one of the state’s leading agricultural counties, total crop values fell from $2.4 million in 1919 to less than $900,000 in 1924. Wyoming farmers, ranchers, their bankers and the small towns where they did business were all hit hard by this statewide agricultural depression.

Salt Creek

The Midwest Oil Company's field on Salt Creek about 1920, the year Congress approved a new system for leasing the right to produce oil on public lands. (Courtesy of Wyoming Tales and Trails — click to enlarge)

But while the price of oil also dropped after the war, it soon steadied at between $1.00 and $1.50 per barrel until 1930. National demand for oil remained high in the 1920s as people bought more gasoline-burning cars and governments built better roads. The booming Salt Creek Oil Field in northern Natrona County, Wyo. for example, reached its all-time peak annual production of 3.5 million barrels in 1923.

But perhaps the most interesting part of the economic mix Bartlett was talking about were the effects of a new law passed by Congress—the Mineral Leasing Act of 1920. And the new law came about because of a dispute that started in the Salt Creek Oil Field, in central Wyoming.

In the long run, the provisions of this law have contributed enormously to Wyoming’s wealth and to the revenues of its state government—helping, as Bartlett said, to make the mineral industry the state’s most important, and to keep it there.

The old 1872 Mining Law allowed companies that extracted any minerals from public land in the West to pay a very low fee for the privilege and, soon, to own the land outright and all the minerals—and profits—that came from it.

The new, 1920 law divided the legal status of oil, natural gas, coal and phosphates from the so-called hard rock minerals like gold, silver, copper and lead minerals, and established a new leasing system that continues today. Companies pay up-front fees when they first lease a piece of federal land with, say, oil or coal on it. Then they pay the government a royalty of one-eighth of the revenue they get from sale of the mineral produced from the land.

The government, in turn, pays half that royalty back to the states from which the mineral was extracted. Wyoming’s finances do extremely well by this system; In fiscal year 2011 alone, for example, federal mineral royalties paid to Wyoming added up to $948 million, half of all the total federal mineral royalty distribution in the U.S. This was enough to finance about 12 percent of the state of Wyoming’s general-fund budget that year.

How this all came about makes for a story that connects Wyoming’s rough-and-tumble oil fields of the early 20th century with the highest levels of national politics.

Want to read more? Click here to read the full article at WyoHistory.org.

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Published on May 8, 2012

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