The last time the federal government raised the amount that oil and gas companies have to pay to drill on public land was in 1960 — the same year that four unknown, floppy-haired Brits formed a band called The Beatles. Other aspects of the Department of the Interior’s oil and gas leasing regime are more than a century old.
Yesterday, the Biden administration proposed what would be a substantial overhaul of this system, a broad new set of rules that would dramatically increase the operators’ financial obligations, boost the royalties that companies pay and tighten permissive leasing regulations.
Many Western environmental advocates and public officials praised the proposal as the much-needed and long-overdue restructuring of a system that has always favored industry. “Big Oil has been operating with an unfair advantage on our public lands for far too long,” Arizona Democrat Raúl M. Grijalva, ranking member of House Natural Resources Committee said, in a statement. The proposed rules would codify reforms that were laid out in the Inflation Reduction Act, signed by President Biden last year.
Reforming onshore federal bonding requirements has long been a priority for environmental groups, especially in the Western U.S., where a great deal of oil and gas production takes place on public land managed by the Bureau of Land Management. If implemented, it would mean a substantial windfall for states like New Mexico, Alaska and Colorado.
The proposal kicks off several months of public comment, during which advocates on all sides will weigh in and changes to the rules can be made. Here’s what you need to know as this process gets underway.
The bonding reforms are a major deal. In order to drill, oil and gas companies must put forward financial assurance in the form of bonds, which are supposed to serve as protection for the public if a company goes bankrupt or proves unable to plug its wells. Federal bonding levels have stagnated for the past 60 years, however.
Under the new rules, bonds for a new oil or gas lease would jump from the current level of $10,000 to a minimum of $150,000. The administration also wants to increase the state-level blanket bond — a single bond that covers all of a company’s wells in a single state — by 20 times: from $25,000 to $500,000. The rules also propose doing away with a national blanket-bond option. For context: Colorado estimates that it costs about $92,000 to plug a single well in its orphan well program. A 2019 report by the U.S. Government Accountability Office found that 99% of federal oil and gas leases have bonds that would be unable to pay for the full cost of cleanup.
These bonding increases are meant to protect taxpayers from having to pay to plug wells that become orphaned, meaning that there is no company willing or able to take responsibility for them. There are hundreds of thousands of these wells across the country. And such wells can be dangerous, leaching pollutants into the local environment and acting as significant sources of methane emissions.
Big royalties for Western oil states. When a company drills for oil and gas on public land, the state where the lease is located is supposed to get a cut. The amount of that cut, however, was set back in 1920 and has not increased since. Currently, the federal government charges a 12.5% royalty rate. Even so, Western states such as Alaska, California, Colorado, New Mexico and Wyoming rake in hundreds of millions of dollars in annual federal royalty payments, money that is used to fund all manner of public services; New Mexico alone, with the enormous amount of drilling that takes place on BLM land in the Permian Basin, has been known to break a billion dollars in annual income from royalties and lease sales. If implemented, the new rules would raise that rate to 16.67%, with the potential for further increases after 10 years — a major influx of cash to the budgets of Western oil states.
Other proposed changes. Bonding increases and royalty rate hikes are the two most prominent parts of the proposed new rules, but other reforms are also on deck. These include an increase in the minimum amount companies must bid at auction for public-land drilling leases, from $2 per acre to $10 per acre. The agency also wants to end the practice of renewing unused leases indefinitely, a longtime source of criticism from public-lands advocates, who accuse the industry of locking up land that should be accessible to all.
The proposed new rule states that these indefinite renewals hinder the BLM’s ability to manage public lands and that the agency wants to “limit the use of lease suspensions and drilling permit extensions.” A 2021 report from the Center for American Progress found that the industry was sitting on millions of acres of unused drilling leases on public land.
The response has been predictable — and yet telling. As expected, environmental groups generally praised the rules, while the industry denounced the proposal as draconian and likely to reduce oil and gas production on federal lands. “Amidst a global energy crisis, this action from the Department of the Interior is yet another attempt to add even more barriers to future energy production, increases uncertainty for producers and may further discourage oil and natural gas investment,” Holly Hopkins, vice president of Upstream Policy for the American Petroleum Institute, said in a statement. “This is a concerning approach from an administration that has repeatedly acted to restrict essential energy development.”
Yet the response of climate groups revealed a split in the environmental movement concerning the administration’s energy policy to date. When Joe Biden was running for the Democratic nomination, he promised to end drilling on federal land. But during his first two years in office, his administration approved more oil and gas permits than former President Donald Trump did in the same time frame. Earlier this year, the administration approved the Willow Project in Alaska, likely to be the largest public-lands oil development ever.
Biden’s supporters and his Interior Department officials tend to frame the proposed reforms as fiscally responsible, long-overdue modernizations designed to ensure that the industry pays its fair share. Some climate advocates, however, said that an administration that calls itself a climate champion should be working to actively phase out public land oil and gas production, rather than attempting to reform it.
“Following months of consecutive climate disasters, the Bureau of Land Management’s determination to rearrange deck chairs instead of deploying lifeboats is deeply disturbing,” said Melissa Hornbein, senior attorney with the Western Environmental Law Center, in a statement. “Coming from an administration that kicked off its tenure with some of the loftiest climate rhetoric of any government on the global stage, Interior’s obdurate reaffirmation of the status quo is staggering.”
Nick Bowlin is the interim South Desk editor at High Country News. Email him at nickbowlin@hcn.org or submit a letter to the editor. See our letters to the editor policy.
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