July 21, 2023

BLM looks to modernize, update oil and gas royalties

Oil and gas companies will pay more to drill on public lands managed by the federal Bureau of Land Management under a new proposed rule announced Thursday by the U.S. Department of the Interior.

The proposed rule updates bonding requirements, royalty rates and minimum bids for leasing lands for extraction.

“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,” BLM Director Tracy Stone-Manning said in a press release. “It includes common sense and needed fiscal revisions to BLM’s program, many directed by Congress.”

The primary reasons for the rulemaking are to update the framework in light of new laws modifying the federal onshore oil and gas program and to enhance the program in a manner consistent with the BLM’s multi-use and sustainable-yield mission, according to the unofficial version of the proposal.

Royalty rates that oil and gas companies pay on fossil fuels extracted from federal lands are consistently lower than what the companies would pay on state lands or offshore leases. 

Bonding levels also have not increased in 60 years. Bonding ensures that there will be money to clean up the wells in the future. Under the proposal, the BLM is considering different alternatives for increasing bonds. One of those alternatives would simply adjust the bonds for inflation, which would increase the amount bonding on an individual lease to $100,000 and statewide bonding would increase to $350,000. Under another scenario, full liability bonds will also be required and the bonds would be increased for inflation. Another alternative would be to require that bonds are adequate to cover the full plugging and reclamation costs of all the wells covered by the bond. That would lead to an average bond rate of $994,000 for individual bonds, which would cover 14 wells, or an average of about $4.86 million for statewide bonds, which would cover 66 wells.

It is likely that inflation-based bond increases will be chosen rather than basing bond rates on total reclamation costs. This is because of staffing requirements and the potential that the reclamation-based bond rates could slow down permitting. The BLM is asking for public input on how it should adjust minimum bond requirements.

Currently, the individual lease bond requirements, which were set in 1960, are $10,000. Companies can pay $25,000 for statewide bonds and $150,000 for nationwide bonds. The statewide and nationwide bond rates were set in 1951.

The increase in bonding is important because the BLM estimates based on its plugging efforts that it costs between $35,000 to $200,000 to plug each well. 

The proposed rule would also eliminate nationwide bonds and add unit operator’s bonds and surface owner protection bonds.

“The BLM believes these proposed changes, particularly the increased bond amounts and the elimination of nationwide bonding, would help ensure that reclamation responsibilities reside primarily with oil and gas lessees and operators and not the American public,” the proposal states.

Some other changes in the proposed rule include fees for nominating parcels. It currently does not cost any money to nominate a parcel of BLM land for leasing. That would change under the proposed rule to a $125 fee.

The proposed rule would also increase the fee for a competitive lease application from $185 to $3,100.

Additionally, the proposal would strengthen requirements for cleaning up wells after they have reached the end of their useful life.

The rules fall short of ending new leasing on federal lands, which many environmental groups have called for. But the groups say that the proposed rules are a step in the right direction.

“These rules are a welcome change from the longstanding status quo of policies that provide giveaways to the oil and gas industry,” Robert Weissman, the president of the advocacy group Public Citizen, said in a press release. “Antiquated rules incentivize oil and gas corporations to shirk their obligation to clean up the mess they create, leaving old, rusty wells pocking the national landscape and foisting the cleanup bill on taxpayers. Today’s proposed rules would impose realistic financial requirements on oil and gas corporations to pay for the remediation of old, decrepit wells, as federal law requires.”

At the same time, Weissman criticized the proposal for continuing the “climate-destroying practice of leasing federal lands for drilling.” 

“But as long as drilling exists on public property, corporate polluters should be held to a high standard for operating and cleaning up their wells,” he said.

Collin O’Mara, the president and CEO of the National Wildlife Federation, described the proposal as a modernization of the oil and gas leasing system.

“If we’re serious about addressing the challenges facing people and wildlife alike today, we need to move our oil and gas leasing system out of the 19th century and into the 21st,” he said. “Outdated oil and gas drilling rules have degraded our public lands and shortchanged taxpayers, Tribes, and wildlife for far too long. These common-sense and decades-overdue improvements will help ensure that the Bureau of Land Management can manage and restore our public lands for the benefit of all users, including for outdoor recreation and conservation, while preventing taxpayers from being left holding the bag on clean-ups and reclamation.”

The Wilderness Society also weighed in on the proposal, which it says could be strengthened.

“We all want a fair chance to live full, healthy lives, but the impacts of air and water pollution, and climate change, threaten public lands’ ability to help us do that.” Jamie Williams, the president of The Wilderness Society, said in a press release. “For far too long, federal public land policies have prioritized fossil fuel companies’ profits at the expense of communities’ wellbeing and public lands themselves. The proposed Oil and Gas Rule is an important step towards the BLM taking a more holistic conservation, climate and community-centric approach to managing public lands.”