Oil and gas drillers would have to commit more than 10 times as much money to guarantee their wells won’t pollute under an Interior Department proposal announced Thursday, the first such update to the program in more than a half-century.
The Bureau of Land Management outlined widespread changes to what oil and gas companies would pay to operate on federal lands, including raising royalty rates and several minimum fees. The biggest change would raise their bonding requirement for the first time since 1960, to $150,000 per lease from $10,000, to help pay to plug wells or secure leaky ones if firms go out of business or abandon their wells.
“We don’t want the taxpayers holding the bag in the future,” Laura Daniel-Davis, Interior principal deputy assistant secretary for land and minerals management, said in a phone interview.
The minimum royalty rate the government is paid from oil and gas production on federal lands would rise for the first time in a century, to 16.67 percent from 12.5 percent. And the agency would raise minimum fees for what companies pay to lease and hold lands, to try to limit speculation on leases that companies can hold for up to a decade without drilling, Daniel-Davis said.
The proposed rules mark the Biden administration’s most ambitious effort yet to overhaul the rules for oil and gas leasing on public lands, the culmination of two years of work aimed at reconciling fossil fuel extraction with the president’s climate agenda.
Administration officials have accused oil and gas companies of hoarding federal land without drilling it, saying that is bad for consumer energy prices, and say they are trying to fix an antiquated rule book that shortchanges taxpayers. Daniel-Davis said the administration wants to reduce incentives for “speculators - less responsible actors that have been out on the landscape.”
The increases in the proposal are substantial, and will make it harder for smaller oil and gas producers to lease and drill on public land, said Dan Naatz, executive vice president of the Independent Petroleum Association of America. It takes a lot of land and millions of dollars of investment to put together a drilling program, and companies need to be able to cobble that land together over time, he added.
“I don’t know any company that just wants to speculate or just sit on leases,” Naatz said. “The goal is to produce.”
Raising bonding requirements could help save taxpayers hundreds of millions of dollars in cleanup costs that the government can get saddled with at today’s lower requirement, according to Interior. Under the proposed rules, which are still subject to a public comment period, oil and gas leaseholders could also pay a statewide bond of $500,000, up from the current $25,000 requirement.
Interior officials are also working on a new rule they say will prioritize conservation on par with energy development, mining and recreation, a sea change for how it manages public lands. They have delayed a new, legally required five-year plan for offshore drilling, which they plan to release late this year. And in the coming months the Environmental Protection Agency is slated to set new rules to tax and limit emissions of methane, a potent greenhouse gas, from oil and gas operations.
The oil industry has bristled at many of these moves, blaming Biden for the rise in oil prices over his first two years in office. Industry officials say access to new areas helps ensure investment and long-term supplies, and that Biden’s decision to choke off that activity has made it harder for the industry to get cheap financing and keep gasoline prices low for consumers.
Many of the changes in this package come from last year’s climate-and-energy-spending legislation, the Inflation Reduction Act. It dictated the new royalty rate for 10 years, and Interior says the proposal would now extend that new 16.67 percent minimum indefinitely.
The law also boosted the floor for bidders trying to lease oil and gas land to $10 an acre, up from $2. The new proposal would adopt that and, after 10 years, set it to keep rising with inflation. The law also set new minimum fees for what leaseholders pay to maintain their acreage and for new bidders to nominate areas for bidding, and Interior wants to put those in place long term, too.
The law helped set clear parameters for Interior’s work and should have helped prepare industry for new rules to come, Daniel-Davis said. The increases account for the true cost of the program, she said.
“This is just common-sense stuff that we are putting into this rule that is consistent with responsible operation of an oil and gas program,” she added. “Most responsible companies will . . . not be surprised.”
Environmentalists have asked for the administration to put more emphasis on climate effects in the revised rules, and use them to potentially phase out new oil and gas leasing. Biden, as a candidate, had pledged to end drilling on federal land, but the new proposal doesn’t go that far.
The proposal does include a request for ideas from the public on how the BLM might factor climate effects into future leasing.
That drew mixed responses from environmentalists. The Sierra Club, among others, said the proposal did not do enough to tackle climate change, while others called it an important, if limited, step forward.
“While the proposed rule takes some necessary steps to better align leasing decisions with climate impacts . . . the Biden-Harris administration could make even more progress through additional reforms to the leasing and nomination process” and to permitting, the Wilderness Society said in a statement.
The proposal would also prioritize development on lands with existing oil and gas infrastructure, or major potential for oil and gas production, while making it harder to do lease sales near important wildlife habitat or cultural sites. There are many Native American cultural sites and well-known wildlife corridors that Biden administration officials think should be a low priority in oil and gas development, Daniel-Davis said, and they want clearer rules to protect those places.