(a) Lands and minerals subject to lease. Those tracts of land and those minerals subject to prospect permit are subject to lease under this section. See §10.1 of this title (relating to Definitions; Exploration and Development Guide).
(b) Lease application requirements and procedures.
  (1) In an application for prospect permit on a state tract, an applicant may indicate that a specific mineral is located on the state tract and request an immediate issuance of a lease on that tract. A lease may be issued to the applicant in lieu of a prospect permit if the commissioner of the GLO determines that such a mineral is located on the state tract and that issuance of a lease to the applicant is in the best interest of the PSF.
  (2) At any time during the effective period of a prospect permit, the permittee may submit an application to lease the area covered by the prospect permit or a designated portion thereof.
  (3) Application to lease shall include:
    (A) an identification of the applicant's prospect permit;
    (B) the date of issuance of the prospect permit;
    (C) a description of the tract of land which identifies it by section number, part of the section or survey to be leased, block number, township number, and/or certificate number, if applicable, survey name, number of acres contained in the section, and county or counties in which the land lies and, if land trade lands, the name and address of surface owner of record in the tax assessor's office;
    (D) the name, address, phone number, and Texas Comptroller's taxpayer ID number of a non-corporate applicant;
    (E) the corporate name, phone number, Texas Comptroller's taxpayer ID number, address, the name of the officer authorized to execute permits and leases;
    (F) designation of the mineral or minerals proposed to be mined;
    (G) statement of the applicant's proposed lease terms; and
    (H) field notes prepared by the county surveyor or a licensed state land surveyor describing the area to be leased, if such area is less than that covered by the prospect permit and cannot be accurately described as a part of the section, such as NE/4.
  (4) The TPWD may review the leasing of lands whose surface is owned or leased by TPWD or is subject to a conservation easement in favor of TPWD, but whose minerals are subject to lease under this section. Within 10 days of receipt of an application to lease on such lands, the GLO shall notify the executive director of TPWD.
  (5) The application to lease shall be accompanied by a filing fee prescribed by §3.31 of this title (relating to Fees) and the proposed lease payment which shall not be less than $2.00 per acre.
  (6) In order to fully evaluate the application to lease, GLO staff may request that an applicant submit additional information, including information about the proposed mining operation.
  (7) Each application to lease shall be subject to the approval of the commissioner and will be evaluated by the staff in order to determine whether the lease is in the best interest of the state by considering the following:
    (A) whether the proposed lease terms and conditions are in conformity with the Texas Natural Resources Code, §§53.015 - 53.030, 53.155, and this section;
    (B) whether the proposed lease terms are comparable to the best leases in the area which cover the same mineral or minerals;
    (C) whether the proposed lease terms are compatible with other valuable uses of the leased premises; and
    (D) whether the lease terms adequately compensate the PSF for the loss of other valuable uses of the leased premises.
  (8) If the commissioner rejects an application to lease, the applicant will be notified and will be advised of the specific reasons for the denial. Applicant may appeal being denied a lease by requesting a hearing.
(c) Issuance of mining lease.
  (1) Leases will be upon a form prescribed and furnished by the GLO and will include those provisions the commissioner considers necessary for the protection of the interests of the state.
  (2) Upon approval of an application to lease, a lease will be prepared with the appropriate terms and conditions, signed by the commissioner, affixed with the seal of the GLO, and delivered to the lessee.
  (3) On the same day that a lease is issued under this section on land whose surface is owned or leased by TPWD or is subject to a conservation easement in favor of TPWD, the GLO shall notify TPWD of the issuance of the lease. Such lease shall state that the surface of such land is owned or leased by TPWD or is subject to a conservation easement in favor of TPWD and shall list the name of the TPWD park or area manager responsible for the surface of such land.
  (4) On land trade lands, the GLO will notify the surface owner that a lease has been issued if the surface owner requests such notice in writing by furnishing the GLO with a current mailing address and a legal description of each tract on which he desires such notice. Notice will also be sent to the surface owner at the address supplied on the application form. Failure to receive notice will not affect the validity of a lease issued under this section.
  (5) Leases shall be recorded in each county in which the state's property is located. After being recorded, lessee shall obtain a certified copy of the recorded lease from the county clerk. Lessee shall send such certified copies to the GLO within 90 days of the date of the transmittal letter. The lease is not effective until a certified copy of the lease is received by the GLO. After the 90-day period has elapsed, the approval of the lease is rescinded unless the applicant requests, and the commissioner approves in writing, an extension of time to send the required certified copies.
(d) Minimum terms and conditions.
  (1) The primary term of a mining lease may be for up to a maximum of 20 years and as long thereafter as the leased minerals are produced in paying quantities. A mining lease may be issued for a fixed term not to exceed 20 years, if the commissioner determines a fixed term lease is in the best interest of the PSF.
  (2) The first lease payment shall be not less than $2.00 per acre.
  (3) The annual rental payments thereafter during the primary term shall be not less than $1.00 per acre, which shall be payable unless production in paying quantities is being obtained and appropriate royalty paid.
  (4) The royalty shall be not less than one-sixteenth of the value of the minerals produced under said lease.
  (5) The lease may provide for both an advance royalty provision and a shut-in royalty. The shut-in royalty provision shall allow the lease to be maintained in one year increments for a total of five consecutive years.
  (6) Upland leases on tracts in which the PSF owns the surface must include a provision requiring the payment of damages for the use of the surface in prospecting for, exploring, developing, or producing the leased minerals. The amount of damages for use of the surface will be determined through negotiations with GLO staff, approved by the commissioner, and incorporated in each lease form.
  (7) Lessee shall conduct all mining operations in compliance with state and federal laws and §10.7 of this title (relating to Conduct of Exploration and Mining Operations).
(e) Assignments, releases, reports, inspections, forfeiture, and reinstatement. Leases issued under this section are subject to all general provisions covered in §10.8 of this title (relating to Assignments, Releases, Reports, Royalty Payments, Inspections, Forfeitures, and Reinstatements).

Source Note: The provisions of this §10.3 adopted to be effective March 22, 1989, 14 TexReg 1280; amended to be effective May 26, 1992, 17 TexReg 3473; amended to be effective December 10, 2009, 34 TexReg 8776