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Why International Issues Are Relevant to the Domestic Deal

Scot Anderson, Craig Spurn, Due Diligence in Mining and Oil & Gas Transactions

“This is a national security issue,” R. James Woolsey, director of the C.I.A. in the Clinton administration, said in a hearing of the House Armed Services Committee. “China is pursuing a national strategy of domination of the energy markets and strategic dominance of the western Pacific.”

New York Times, July 14, 2005.1

Not every foreign investment in the United States gets quite the same scrutiny as the proposal by CNOOC, the Chinese state controlled oil and gas company, to purchase Unocal in 2005. Still, when foreign investment intersects with our increasingly strategic domestic natural resources, some unique issues arise.2 This paper explores some of those issues, and their related relevance to the due diligence process.

I. Mineral Interests

A. Mineral Leasing Act

The United States grants the right to develop certain minerals by leasing those mineral rights to potential developers. These leases are granted under the Mineral Leasing Act of 1920 (as amended).3 Leasable minerals include coal, oil and gas, phosphates, oil shale and gilsonite, sodium, sulfur, and potash.4 The Mineral Leasing Act restricts leasing these minerals to foreign citizens or companies. Leasable minerals “shall be subject to disposition in the form and manner provided by this chapter to citizens of the United States, or to associations of such citizens, or t