New rules for oil and gas leasing raise rates energy companies pay to drill on public lands

The Biden administration is proposing new rules for the nation’s oil and gas leasing program to raise costs for energy companies to drill on public lands and strengthen requirements to clean up old wells where drilling is completed or abandoned

The Biden administration is proposing new rules for the nation’s oil and gas leasing program that would raise costs for energy companies to drill on public lands and strengthen requirements for cleaning up old wells where drilling is completed or abandoned.

A rule proposed Thursday by the Interior Department codifies provisions in the sweeping climate law approved last year, as well as the 2021 infrastructure law and recommendations from an Interior report on oil and gas leasing issued in November 2021.

The rule does not go so far as to prohibit new oil and gas leasing on public lands, as many environmental groups have urged and as President Joe Biden promised during the 2020 campaign. But officials said the proposal would lead to a more responsible leasing process that provides a better return to U.S. taxpayers.

The new rule “provides a fair return to taxpayers, adequately accounts for environmental harms and discourages speculation by oil and gas companies,'' said Laura Daniel-Davis, principal deputy assistant Interior secretary for land and minerals management.

Interior "is committed to creating a more transparent, inclusive and just approach to leasing and permitting that serves the public interest while protecting natural and cultural resources on our public lands,″ she added.

The climate law passed by Congress, known as the Inflation Reduction Act, set royalty rates for drilling on public lands at 16.67%, an increase over the 12.5% rate that oil and gas companies paid for drilling rights for a century. The previous rate was significantly lower than many states and private landowners charge for drilling leases on state or private lands.

The new rate is expected to remain in place until August 2032, after which it can be increased.

The rule also would increase the minimum leasing bond paid by energy companies to $150,000, up from the previous $10,000 established in 1960. The higher bonding requirement is intended to ensure that companies meet their obligations to clean up drilling sites after they are done or cap wells that are abandoned.

The previous level was far too low to force companies to act and did not cover potential costs to reclaim a well, officials said. As a result, taxpayers frequently end up covering cleanup costs for abandoned or depleted wells if an operator refuses to do so or declares bankruptcy. Hundreds of thousands of “orphaned” oil and gas wells and abandoned coal and hardrock mines pose serious safety hazards, while causing ongoing environmental damage.

The Interior Department has made available more than $1 billion in the past two years from the infrastructure law to clean up orphaned oil and gas wells on public lands. The new rule aims to prevent that burden from falling on taxpayers in the future.

Bureau of Land Management Director Tracy Stone-Manning, whose agency issued the new rule, said the proposal “aims to ensure fairness to the taxpayer and balanced, responsible development as we continue to transition to a clean energy economy. It includes common-sense and needed fiscal revisions to BLM’s program, many directed by Congress.”

The BLM, an Interior Department agency, oversees more than 245 million acres of public lands, primarily in the West.

The proposal issued Thursday follows an Interior report on federal oil and gas leasing issued in November 2021. Biden ordered the report soon after taking office in January 2021 as he directed a pause in federal oil and gas lease sales, citing worries about climate change.

The moratorium drew sharp criticism from congressional Republicans and the oil industry, even as many environmentalists and Democrats urged Biden to make the leasing pause permanent.

The moratorium was overturned by the courts, and oil and gas lease sales have resumed, including some mandated by the climate law in a compromise with Democratic Sen. Joe Manchin of West Virginia.

A separate proposal by the Biden administration would put conservation on equal footing with industry. The plan would allow conservationists and others to lease federally owned land to restore it, much the same way oil companies buy leases to drill and ranchers pay to graze cattle. Leases also could be bought on behalf of companies such as oil drillers who want to offset damage to public land by restoring acreage elsewhere.

Critics including Republican lawmakers and agriculture industry representatives blast the BLM plan as a way to exclude mining, energy development and agriculture.