Editorial: Gifts in small packages

The US Bureau of Land Management (BLM) last month announced reformed onshore oil and gas lease sales, reducing previously nominated acreage by 80% and increasing royalties to 18.75% from 12.5%. The agency assessed 646 potentially available and eligible parcels on roughly 733,000 acres in Alabama, Colorado, Montana, Nevada, New Mexico, North Dakota, Oklahoma, Utah, and Wyoming and on June 14, 2022, will offer about 173 parcels on 144,000 acres.

The oil and gas industry and its supporters have long pilloried the Biden administration for refusing to even attempt to hold onshore lease sales. Environmental groups, meanwhile, have been doing their best to hold his feet to fire regarding any number of green-minded campaign promises (cue “no more drilling on federal lands, no more drilling, including offshore, no ability for the oil industry to continue to drill, period, ends, number one”). Both sides are now spewing invective at the anticipated calamitous results of BLM’s actions.  

Independent Petroleum Association of America (IPAA) senior vice-president of government relations and political affairs, Dan Naatz, decried the administration’s failure to consult with industry experts regarding which parcels to include in the lease. Naatz said his group had repeatedly tried, without luck, to engage the Biden administration in discussion of how federal policies and oil and gas companies can together provide energy supplies to the public. “They’ve had no interest in talking about how we can work together to address these needs,” Naatz said. He went on to describe the sale as “strictly a political maneuver.”

Naatz is probably right regarding the politics. This type of attempted baby splitting is hardly ever the child of conviction.

In efforts to assuage environmental concerns, meanwhile, BLM took pains to point out that the leasing parcels to be offered were near existing development and infrastructure, such as gathering lines, that can help reduce venting and flaring, and will help conserve the resilience of intact public lands and functioning ecosystems. BLM also prioritized avoiding “important wildlife habitat,” migration corridors, and sensitive cultural areas. The agency said that disclosing GHG emissions and the social cost of GHG emissions as part of its environmental analysis “provided important context” for its decision-making. The sales will also ensure that Tribal consultation happens.

Tiny changes

The old royalty rates had been in place for more than 100 years, enacted in 1920 at a time when almost none of the technological nor economic factors now at play could even have been imagined. Only a very small fraction of operator revenues will be subject to the new, higher royalty rate: that derived from production by any wells drilled on the new leases. The previous rates will continue to hold sway over previous leases, themselves a small portion of US production, putting paid to any complaints that companies’ ability to function is somehow going to be undone.

At the end of 2021, about 25 million acres were under lease for oil and gas development, according to BLM. Of these, about 12.6 million acres were producing, leaving 12.4 million acres still producible under the old rates, compared with 144,000 to be offered under the new.

Environmentalists, meanwhile, can take some solace in the knowledge that, evidently, many of these acres will never be developed. Among other factors, they’ll need to be economically viable. Economic viability comes down to price, which comes down to supply and demand, and the world is still long hydrocarbons.

The Biden administration’s middling, do-nothing energy policies are frustrating and counterproductive. But in this instance, the industry got a tiny tactical win (new leases) and environmentalists a proportionally tiny loss.

And strategically, the stakes were much higher. By doubling back, even this incrementally, new seeds of Biden’s electoral undoing may well have been sown.