alt=Amy Joi O'DonoghueThe Bureau of Land Management recently finalized its rule and update to oil and gas leasing on federal public lands, pleasing a few groups who says the changes are long overdue, angering other groups that leasing is still allowed and sparking swift condemnation by industry associations.
“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public, and protect taxpayers from being saddled with the costs of environmental cleanups,” said Interior Secretary Deb Haaland this week. “Alongside the historic investments we are making through President Biden’s Investing in America Agenda to clean up orphaned oil and gas wells, these reforms will help safeguard the health of our public lands and nearby communities for generations to come.”
The changes brought praise from at least one group.
“We are excited that the Department of the Interior finally took important action to reform the federal oil and gas leasing program. These historic, common sense reforms will provide relief for taxpayers, protect wildlife habitat, and ensure oil and gas polluters pay their fair share to clean up the messes they make after drilling on public lands,” said Shelbie Swartz, executive director of the Institute for a Progressive Nevada.
“This rule provides a fair return to taxpayers by increasing fees for oil and gas development, bringing them in line with the levels required by many states,” she added.
What are the changes?
The BLM instituted these reforms:
- Bonding Requirements: The rule increases the minimum lease bond amount to $150,000 and the minimum statewide bond to $500,000, and it eliminates nationwide and unit bonds. The previous lease bond amount of $10,000 — established in 1960 — no longer provided an adequate incentive for companies to meet reclamation obligations or cover the potential costs to reclaim a well should this obligation not be met, leaving taxpayers at risk for the cost of cleanup, the BLM argued.
- Royalty rates for leases are set at 16.67% until 2032 — 10 years after enactment of the Inflation Reduction Act—then 16.67% will become the minimum royalty rate. Previously, the minimum royalty rate was 12.5%.
- Minimum bids: The minimum amount companies can bid at auctions for federal oil and gas leases increases to $10 per acre, up from $2 per acre. After 2032, that amount will be regularly adjusted for inflation.
The Western Energy Alliance represents independent oil and gas producers in the West, including Utah, and has already said it will sue.
“The BLM rule will drive small producers off public lands. The bonding amounts are excessive when there are just 37 orphan wells out of more than 90,000 wells on federal lands. Increasing bonding amounts 20-fold in order to take care of a problem on just .004% of wells is way out of proportion,” said Kathleen Sgamma, president of the alliance.
Rikki Henrko-Browning, president of the Utah Petroleum Association, said it joined with national energy trade associations to provide comment on the rule before it was adopted.
“Many of our comments were roundly ignored, which is frustrating because while claiming to improve stewardship of federal lands, this will instead continue to drive mineral production off of them. This continues a pattern of hostility from the Biden administration toward American oil and natural gas production which continues to flourish on private and state lands,” she said.
“The material effect is that states and localities, including here in Utah, that rely on revenues from federal land extractive industries to meet their budget obligations, such as the Community Impact Board, are facing a future of lower revenue,” she added. “This decision is further baffling considering the United States is a stable and vital energy lifeline to our allies in Europe and Asia in times of complex geopolitics.”
The associations pointed to these economic benefits in its comments on the rule, noting that in fiscal year 2022, onshore federal oil and natural gas development supported nearly 250,000 jobs, generated $19.4 billion in labor income, and contributed $36.7 billion to U.S. gross domestic product.
What states are most impacted?
Five states represented 95.5% of the 2,063 well bores started on federal lands in fiscal year 2022: Wyoming, New Mexico, North Dakota, Colorado and Utah.
In Utah, onshore federal oil and gas produces significant revenue.
Jason Gardner, spokesman for the Utah State Tax Commission, said for fiscal years 2018, 2019 and 2020, it brought in around $30 million. In fiscal year 2021, that revenue dropped to $19.7 million — likely due to the COVID-19 pandemic.
But by fiscal year 2022, the revenue jumped to $75 million, representing a 284% increase, Gardner said. It reached an all-time high of $114 million for fiscal year 2023, a 51% spike from the year before. So far, with nine months into this fiscal year, it is tracking at $60 million as of the end of March. At that rate, Gardner said it will likely hit $75 million by the end of this fiscal year. Those revenue reports are available via the tax commission’s database.
Still, some groups say Biden’s overhaul of the BLM regulations did not go far enough.
“Reading this rule is like finding an old floppy disk. It doesn’t belong in 2024,” said Gladys Delgadillo, a climate campaigner at the Center for Biological Diversity. “Updating oil and gas rules for federal lands without setting a timeline for phaseout is climate denial, pure and simple. Secretary Haaland can still jump-start the crucial process of phasing out fossil fuels on our public lands, despite past missed chances. “