Above: Oil wells on federally managed lands are at risk of being abandoned to be cleaned up by taxpayers without federal leasing reform.
After some small but notable victories, it’s time for the administration to return to federal leasing reform.
The Biden administration has made a lot of promises to reform the broken federal oil and gas leasing program, but a majority of their proposals to ensure fair returns for taxpayers and prevent further climate catastrophes have yet to come to fruition. The administration is running out of time to address this system that currently serves to line the pockets of oil and gas CEO’s at the expense of our communities, climate, and lands across the West.
Last fall, after President Biden’s federal oil and gas leasing moratorium was blocked by a Louisana Judge, the Department of Interior (DOI) issued a report that revealed significant reforms are needed in the county’s oil and gas program’s leasing processes. Recommendations included: requiring corporations to pay a fair market rate for publicly owned oil and gas, ensuring companies that drill have the resources to clean up after themselves, and meaningful public participation and input. The Department of the Interior has yet to release new rules to address their own common-sense recommendations.
A handful of anticipated reforms were also included in President Biden’s $1.7 trillion social and climate spending plan, the Build Back Better Act. The legislation faces opposition from Senator Joe Manchin, a Democrat from West Virginia, and is unlikely to pass Congress. Many of the Biden administration’s goals have also been sidelined by a recent ruling on Biden’s key climate metric, a calculation used in a range of decisions affecting fossil fuel extraction of federal minerals, upcoming rulemaking, and infrastructure projects.
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However, recent victories for the administration include nearly getting proposed rules to prevent dangerous methane pollution from new and existing oil and gas wells over the finish line. Additionally, the Department of Interior announced the start of their program to clean up leaking orphaned wells across the United States, funding which was allocated by Congress in the Bipartisan Infrastructure Bill that passed last fall. The latest glimmer of progress was an accidental preview of a historic increase to onshore royalty rates for federal oil and gas leases. At the end of January 2022, a draft proposal was online for a brief period and showed that the Bureau of Land Management (BLM) would increase the 100-year-old federal royalty payments from 12.5% to 18.75% and remove low-potential and fragile lands from leasing. This is one of many expected improvements from DOI which gave much hope that a longer list of reforms will be coming shortly. These changes are also aligned with the DOI report from last fall when it found federal royalty rates are far below those on private and state-controlled lands.
Despite this small headway, many of the issues concerning oil and gas development such as increasing numbers of orphaned wells and methane pollution start much further upstream, and therefore significant reforms to the oil and gas leasing program are necessary.
Why are leasing reforms necessary?
For decades, frontline communities living above federally managed oil and gas deposits such as Native American allottees and split estate farmers and ranchers have called for major reforms to the broken, outdated, and often harmful oil and gas leasing system. One major issue is that there is not enough money collected to clean up old wells where no responsible company can be found. BLM’s current regulations set minimum bond values at $10,000 for all of an operator’s wells on an individual lease, $25,000 for all of an operator’s wells in a state, and $150,000 for an operator’s wells nationwide. These amounts are often far below actual reclamation costs and the cost to plug and reclaim a single well is often many times higher than the entire blanket bond amount. When companies go under or file for bankruptcy, the full cost of cleaning up these wells falls on American taxpayers. Without changes to this system, the United States can expect to see surges in orphaned wells across the country.
“These amounts are often far below actual reclamation costs and the cost to plug and reclaim a single well is often many times higher than the entire blanket bond amount.”
The DOI report also found that outreach and public input are often not fair, adequate, or equitable and further perpetuate issues of environmental injustice. Specifically, the practices of anonymous lease nominations, which allows a company to bid on leases without their name being disclosed and other inadequacies like lack of consultation for land use planning, restricts and eliminates public notice and comment periods leaving out local community voices, including Tribal voices. The report recommends that it undertake Tribal consultations and solicit more public input into the leasing and permitting process.
What do states stand to gain from these reforms?
Increasing the federal royalty rate has the potential to benefit state and Tribal governments. State governments receive half of the revenue the federal government takes in for leases within their borders and often rely on it to fund schools, public health programs, and critical infrastructure. A recent calculation estimated that If the royalty rate were 20% instead of 12.5%, states’ share from oil extracted on federal lands in 2019 would have been $1.19 billion higher. This could be a boon for state governments that are seeing a decrease in the extraction of fossil fuels and are heavily dependent on minerals to fund local and state budgets. Additional revenue from royalties can also help states plan for future economic and workforce transition.
No time to wait
WORC continues to urge the Secretary of the Interior, Deb Haaland, and the Biden administration to implement these long-needed reforms to our country’s antiquated oil and gas leasing system. We will consistently advocate for ensuring that the sale of public oil and gas accounts for the full cost of production and reclamation, requiring a fair return on publicly owned resources, and leading an efficient and transparent process for public participation and input. WORC also recently joined a coalition with partners across the country to support DOI-proposed reforms to fix the broken federal oil and gas program–learn more about the coalition here.
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