The US Department of the Interior on July 20, 2023, announced steps to revise Bureau of Land Management (BLM) onshore oil and gas leasing regulations. In doing so, BLM cited a need to ensure a balanced approach to development, including providing a “fair return” to taxpayers and ensuring drilling doesn’t damage either the environment or cultural sites.
BLM also flatly stated that the revised regulations were part of its ongoing efforts to build a program that “discourages speculation by oil and gas companies.” This is problematic, given that the first step of any hydrocarbon extraction project is speculating that there’s enough oil or gas in place at a particular location to make drilling worthwhile.
The revisions to regulations were taken to meet the requirements of the Inflation Reduction Act of 2022 and modify the Mineral Leasing Act of 1920. Under the revised regulations, minimum onshore federal royalties would increase to 16.67% from the current 12.5%. The minimum bid to lease an acre of federal land would increase to $10/acre from $2/acre now. Annual rental rates, currently $1.50/acre, will rise by stages over 10 years to $15/acre, after which they can be increased further. A new $5/acre fee would also be added to cover the cost to the Interior Department of responding to oil and gas companies’ expressions of interest in tracts for exploration.
American Petroleum Institute vice-president of upstream policy Holly Hopkins described the changes as “yet another attempt to add…barriers to future energy production,” placing the organization in the somewhat unusual position of agreeing with the government’s reasoning for rolling out yet another regulatory restriction. At least the Biden administration isn’t pretending anymore.
One nod to its environmental base, however, was a provision to increase the minimum lease-bond amount to $150,000 from its current $10,000, a move intended to compel companies to clean up drilling sites and cap abandoned wells. Even so, administration fans are likely disappointed, nothing in the new regulations coming anywhere close to banning oil and gas leasing on public lands, a proposal that featured prominently in the President’s 2020 campaign.
Unnecessary impediments
The government, like any property owner, can dictate the terms-of-use for its land. Unlike other property owners, however, it needs to balance the needs of all parties to the land. The revised BLM leasing regulations are not balanced. They come down squarely on the side of those who oppose the oil and gas industry and confirm industry’s view that—notwithstanding the occasional large project approval—the current administration is among that number.
The financial burden imposed by the updated royalties is minimal; $1.8 billion spread across the industry between now and 2032, according to Interior. Given this, one could be forgiven for asking why the industry doesn’t just make whatever adjustments it needs to and move along.
The reason is that incremental changes add up, and eventually become cost increases that affect operations. Even more to the point, just like when dealing with bullies or despots, failure to draw and hold a line early does nothing but encourage continued abuse. As Sen. John Barrasso (R-Wyo.) put it: “We should pursue changes in law that will benefit all energy sources and projects.”
But even while it’s offering the carrot of incentives to oil and gas companies for any number of energy transition or climate related programs—from direct-air capture and carbon capture and sequestration in general, to biofuels and hydrogen—the administration continues to wield the stick of ever-mounting costs and restrictions in the traditional oil and gas space. If the government insists on interfering in the market, it might be best served by at least putting the stick down and letting the companies involved allocate their resources as they see fit in response to the carrots.