Producers will pay more to develop and produce oil and natural gas on federal lands under a sweeping final rule issued Apr. 12 by the Department of Interior’s Bureau of Land Management (BLM).
The Fluid Mineral Leases and Leasing Process rule marks BLM’s first comprehensive update to the federal onshore oil and gas leasing framework since 1988, the first update to minimum bonding levels since 1960, and the first increase in royalty rates in more than 100 years.
“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,” Interior Secretary Deb Haaland said in a statement.
BLM said the rule would guide its efforts to focus oil and gas leasing in areas that are the most likely to be developed—areas with existing infrastructure and high oil and gas potential—to reduce the pressure to develop areas that may contain sensitive wildlife habitat, cultural resources, or high recreational usage.
“Our public lands are owned by all Americans, and the Bureau of Land Management remains committed to managing them in a balanced, responsible way,” said BLM Director Tracy Stone-Manning. “This rule will help protect critical wildlife habitat, cultural resources and recreational values, and it will ensure a fair return for American taxpayers.”
The rule addresses longstanding Government Accountability Office (GAO) and Inspector General recommendations, “ensuring we have a modern oil and gas leasing program that protects the public’s interests,” said Principal Deputy Assistant Secretary for Land and Minerals Management Steve Feldgus.
The new regulations raise the minimum lease bond amount by more than 15-fold to $150,000 and the minimum statewide bond to $500,000, while eliminating nationwide and unit bonds.
Previous GAO and IG reports recommended such a change, noting that the current minimum bond of $10,000, implemented in 1960, failed to cover decommissioning costs of abandoned wells and pipelines.
The increased bond amounts “will mean those costs are borne by oil and gas companies rather than taxpayers,” BLM said.
BLM changed other fiscal terms to comply with 2022’s Inflation Reduction Act. Royalty rates for leases are set at 16.67% until Aug. 16, 2032. At that point, the 16.67% rate becomes the minimum royalty rate, up from the current minimum of 12.5% (OGJ Online, July 20, 2023).
The new regulations also raise the minimum amount companies can bid at auctions for federal oil and gas leases to $10/acre, up from the current $2/acre.
Rental rates jump to $3/acre for the first 2 years, $5/acre per year for the subsequent 6 years, and then $15/acre per year thereafter. That is up from the current lease rates of $1.50/acre for each of the first 5 years of holding a lease, then $2/acre for the next 5 years, BLM explained.
