Oil companies will have to lay down significantly more money to drill on public lands following a sweeping final rule published by the Biden administration Friday that also increases federal royalty rates and aims to shrink the future footprint of the nation’s oil program.
The rule caps a multiyear effort by the Interior Department to “modernize” how the U.S. manages vast resources of oil and natural gas under public lands in states like Wyoming and New Mexico, with changes that have thrilled many environmental advocates, disappointed climate activists and angered drillers.
“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public, and protect taxpayers from being saddled with the costs of environmental cleanups,” Interior Secretary Deb Haaland said in a statement Friday.
Some of the revisions finalized Friday were ordered by the Democrats’ 2022 climate law, the Inflation Reduction Act, including higher royalties. Others echo the Biden administration’s call to “modernize” the federal oil program in a 2021 report that argued oil drillers were not paying enough to extract public minerals.
“The rule is the BLM’s first comprehensive update to the federal onshore oil and gas leasing framework since 1988, the first update to minimum bonding levels since 1960, and the first increase in royalty rates in more than 100 years,” BLM said Friday.
The rule requires a minimum bond for drilling a federal lease that’s 15 times higher than the previous minimum of $10,000. Environmental groups and government watchdogs like the Government Accountability Office have asked BLM for years for stronger bonding requirements to cover decommissioning costs of wells and pipelines when they are abandoned.
Drillers are already panning the rule as an attack on their industry and threatening to sue.
Kathleen Sgamma, president of the Western Energy Alliance, said the bonding updates were “excessive.”
“The BLM rules will drive small producers off public lands, and we will have to litigate,” she said.
The final rule suggests the Bureau of Land Management will have a higher responsibility to limit oil and gas in areas that are considered valuable for wildlife or recreation by prioritizing leasing in areas with greater oil potential. Oil companies nominate lands for lease, but BLM decides what acres are ultimately offered for sale.
“Our public lands are owned by all Americans, and the Bureau of Land Management remains committed to managing them in a balanced, responsible way,” said BLM Director Tracy Stone-Manning. “This rule will help protect critical wildlife habitat, cultural resources and recreational values, and it will ensure a fair return for American taxpayers.”
The BLM rule is one of the most lasting changes that the Biden administration has made to the nation’s oil program and represents a reform strategy that President Joe Biden adopted soon after taking office.
Biden had initially promised to retire drilling on public lands as part of his larger climate agenda but retreated due to legal setbacks early in office, a disappointment for many climate groups.
A federal judge reversed Biden’s attempt to stop leasing temporarily in 2021. Later, the Inflation Reduction Act included some of Biden’s asks like higher federal royalties, but they came with caveats from West Virginia Sen. Joe Manchin, a conservative Democrat, to ensure continued oil and gas drilling on public lands and offshore.
A climate group expressed support for Biden’s reforms Friday, but said they fall short of curbing the climate impact of drilling on public lands.
“This rule fails to confront the massive tide of climate emissions stemming from its leasing program,” said Nicole Ghio, senior fossil fuels program manager at Friends of the Earth. “If Interior intends to manage our public lands for the public good, then it must account for the future generations living under the threat of catastrophic climate change.”
What’s in the final rule?
One of the most significant monetary updates in the rule is the minimum amount of cleanup insurance companies must secure to drill on public lands, $150,000 per lease, up from the current $10,000 per lease.
“The previous lease bond amount of $10,000 — established in 1960 — no longer provided an adequate incentive for companies to meet their reclamation obligations, nor does it cover the potential costs to reclaim a well should this obligation not be met, leaving taxpayers at risk for the cost of cleanup,” BLM said in a Friday statement.
The rule also increases the statewide bond to at least $500,000 and eliminates nationwide bonds.
The bonding changes will phase in over time, and minimum bonds can be adjusted every 10 years for inflation. Every four years, BLM can also update for inflation some of the other cost increases in the rule, including rental fees, minimum bids for lease sales and the fees for nominating a parcel of land for oil and gas leasing.
Many of the provisions in the final rule are codifying changes ordered by the Inflation Reduction Act. Those include raising the royalty rate for the next 10 years from no less than 12.5 percent to 16.67 percent. After that time, 16.67 percent will be the new minimum royalty.
Other changes in the rule: The minimum bid for lease sales is raised from $2 per acre to $10 per acre. Minimum rental rates will be increased over time, and proposals for land to be auctioned for oil leasing will cost $5 per acre.
“These new regulations are the kind of common-sense reforms the federal oil and gas leasing program has needed for decades,” said Sierra Club Lands Protection Program Director Athan Manuel in a statement Friday. “The days of oil and gas companies locking up public lands for decades for pennies on the dollar and leaving polluted lands, water, and air in their wake are over.”
A lasting but difficult-to-quantify change in the rule aims to “steer oil and gas development away from important wildlife habitat and important cultural sites,” BLM noted Friday.
That provision orders BLM to give lands with high oil and gas potential preference for energy leasing. It’s supported by some hunting and conservation groups.
“Energy development and conservation need not be mutually exclusive,” said Emily Olsen, vice president of the Rocky Mountain Region for Trout Unlimited. “The BLM is prioritizing energy development where it will have the fewest resource impacts.”
The prioritization language has been criticized by oil and gas groups that doubt BLM’s estimates of where oil and gas could be successful.
The rule also extends the amount of time a drilling permit lasts from two years to three years, an approach House Republicans last year included in their sweeping pro-fossil fuels energy bill H.R. 1, which would extend drilling permits to four years.
Overall, the rule has been slammed by many oil and gas operators as being punitive. The Independent Petroleum Association of America said Friday the rule was crafted to “placate environmentalists.”
“This is another rule by the Biden administration meant to deliver on the president’s promise of no federal oil and natural gas,” said Sgamma, with the Western Energy Alliance.
The rule was praised by several House Democrats, including Natural Resources ranking member Raúl Grijalva of Arizona and Katie Porter of California.
“When Big Oil uses our public lands, it stands to reason that they should be giving American taxpayers a fair return for the privilege,” said Grijalva. “The ultimate goal is phasing out fossil fuels for good, but these new taxpayer protections will help make sure the American people aren’t getting ripped off.”
