Interior Department Takes Steps to Modernize Oil and Gas Leasing on Public Lands, Ensure Fair Return to Taxpayers

Date: Thursday, July 20, 2023
Contact: Interior_Press@ios.doi.gov

WASHINGTON —  The Department of the Interior today announced new steps to revise the Bureau of Land Management’s oil and gas leasing regulations, which would ensure a balanced approach to development, provide a fair return to taxpayers and ensure that drilling does not conflict with protection of important wildlife habitat or cultural sites.

The proposed rule would revise outdated fiscal terms of the onshore federal oil and gas leasing program – including for bonding requirements, royalty rates, and minimum bids – which would increase returns to the public and disincentive speculators or less responsible actors.

“The Interior Department has taken several steps over the last two years to ensure the federal oil and gas program provides a fair return to taxpayers, adequately accounts for environmental harms, and discourages speculation by oil and gas companies. This new proposed rule will help fully codify those goals and lead to more responsible leasing and development processes,” said Principal Deputy Assistant Secretary for Land and Minerals Management Laura Daniel-Davis. “The Department is committed to creating a more transparent, inclusive and just approach to leasing and permitting that serves the public interest while protecting natural and cultural resources on our public lands.”

“This proposal to update BLM’s oil and gas program aims to ensure fairness to the taxpayer and balanced, responsible development as we continue to transition to a clean energy economy,” said BLM Director Tracy Stone-Manning. “It includes common sense and needed fiscal revisions to BLM’s program, many directed by Congress.”

Modernizing the fiscal terms of the leasing program is central to this proposed rule. Federal onshore oil and gas royalty rates are historically consistently lower than on state-issued leases and federal offshore leases; in fact, onshore royalty rates hadn’t been raised in over 100 years prior to the Biden-Harris Administration taking office. Likewise, bonding levels have not been raised for 60 years, while minimum bids and rents remained the same for over 30 years.

The proposed rule would specifically codify provisions made by Congress in the Inflation Reduction Act and the Bipartisan Infrastructure Law, as well as recommendations from the Department of the Interior’s  Report On The Federal Oil And Gas Leasing Program Doi Eo 14008 [pdf] , issued in November 2021. The proposed rule is also consistent with Executive Order 14008, Tackling the Climate Crisis at Home and Abroad.

Key elements of the proposed rule include:

• Bonding requirements: The rule proposes to increase the minimum lease bond amount to $150,000 and the minimum statewide bond to $500,000, and it proposes to eliminate nationwide and unit bonds. The existing lease bond amount of $10,000 -- established in 1960 -- no longer provides an adequate incentive for companies to meet their reclamation obligations, nor does it cover the potential costs to reclaim a well should this obligation not be met. The current, outdated bond requirement increases the risk that taxpayers will end up covering the cost of reclaiming wells in the event the operator refuses to do so or declares bankruptcy. The Interior Department has made available more $1 billion in the past two years from Bipartisan Infrastructure Law funding to clean up orphaned oil and gas wells on federal, state and private lands. This proposed rule aims to prevent that burden from falling on the taxpayer in future years.
• Protecting Wildlife and Cultural Resources: The rule would help steer oil and gas development away from important wildlife habitat or cultural sites, and instead toward lands with existing infrastructure or high production potential.
• Royalty rates: Proposed changes to royalty rates reflect provisions of the Inflation Reduction Act. Royalty rates for leases issued for 10 years after the effective date of the Inflation Reduction Act are 16.67 percent. After August 16, 2032, the rate of 16.67 percent will become the minimum royalty rate.
• Minimum bids: The rule would codify a provision of the Inflation Reduction Act that increased the national minimum bid from $2 per acre to $10 per acre, or fraction thereof, and after 10 years regularly adjusts that amount for inflation. The minimum acceptable bid is important because it establishes the starting bid at the BLM’s oil and gas lease auctions.
• Base, or minimum, rental rate: Pursuant to the Inflation Reduction Act, for leases issued in the 10 years after its enactment, the proposal includes a rental of $3 per acre, or fraction thereof, per year during the first 2-year period beginning upon lease issuance, $5 per acre per year, or fraction thereof, for the following 6 years, and then $15 per acre, or fraction thereof, per year thereafter. After August 16, 2032, those rental rates will become minimums and are subject to increase.
• Expressions of Interest: The Inflation Reduction Act established a new fee for expressions of interest. The proposed rule includes that fee, which is $5 per acre, or fraction thereof.

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