The Interior Department has released a report that recommends raising royalty rates, minimum bonus bids, rental rates, and potentially other costs levied on oil and gas companies bidding for leases on federal lands.
The report, a review of federal oil and gas leasing ordered by President Biden, says the federal leasing fails to provide a fair return to taxpayers, inadequately accounts for environmental harms, fosters speculation to the detriment of consumers, and allows oil and gas development in areas that might better be reserved for such uses as conservation or recreation.
The report generally avoids recommending specific rates for royalties and other costs, instead simply urging that they be higher.
In some cases the report settles for observation rather than recommendation. It notes that Interior agencies “will be continuing to study the most appropriate method of revising royalty rates and other fiscal terms to monetarily account for the costs of carbon dioxide, methane, and nitrous oxide.”
That was one of the report’s few references to greenhouse gases, though Biden’s Executive Order 14008, which required the review, put overwhelming stress on “the climate crisis,” and Interior Secretary Deb Haaland repeated that phrase in announcing the release of the report Nov. 26.
Many or most of the report’s recommendations could raise costs without a direct impact on greenhouse gas emissions, although there could be indirect impacts. Critics have warned that the Biden administration may drive more production to other nations, including countries with weaker greenhouse gas controls.
Need for changes seen
To Rep. Raul Grijalva (D-Ariz.), chairman of the House Natural Resources Committee, the report demonstrated the need for Congress to pass leasing reform bills, such as those that have emerged from his committee. Provisions similar to those bills—and to the Interior report’s recommendations—have been included in the $2 trillion budget bill passed by the House Nov. 19 and sent to the Senate (OGJ Online, Nov. 19, 2021).
Grijalva also said the report showed the need for the Biden administration to write new regulations. His point touched on a notable aspect of the subject—the fact that most of the regulations are within the scope of Interior authority, not in need of congressional action.
The 12.5% federal royalty rate commonly used for onshore oil and gas production, for example, is a minimum set by the Mineral Leasing Act of 1920. Interior has the authority to go higher for new leases. Most of the recommendations in the report would apply to new leases, given that the terms for existing leases have the kind of protection given to contracts.
The report’s recommendations presumably came as no surprise to industry, which has seen the similar proposals from Grijalva’s committee and elsewhere in Congress.
“The Biden administration continues to rely on tired arguments that do not tell the true story of mineral development on America’s federal lands,” said Dan Naatz, executive vice-president of the Independent Petroleum Association of America.
“At a time when Americans continue to struggle with high prices and inflation for everything from food to fuel, today’s report from the Department of the Interior makes little sense,” Naatz said Nov. 26.
Fitness to operate
The report notes that the Bureau of Ocean Energy Management plans to develop a “Fitness to Operate” standard for new lessees in federal offshore waters and for current lessees seeking additional properties, the idea being to guard against companies with poor environmental, safety, or reclamation histories.
The report indicates the Bureau of Land Management (BLM) should do the same for onshore operators, not only as a fiscal and environmental policy but to reduce speculation, which can temporarily lock up leased lands to the detriment of other potential uses.
“The BLM should consider reforms that ensure that bidders—and any subsequent proposed leaseholders or operators—are publicly identified and financially and technically qualified to develop leases,” the report says.
