A new regulation announced by the Biden administration on Thursday signifies cost escalation for oil and gas corporations seeking to drill on public lands and stricter conditions for remediation of old or deserted wells.
This rule, introduced by the Interior Department, propels the royalty rates for oil drilling by over one-third, ascending to 16.67%. This revision aligns with the substantial climate legislation that Congress approved last year. For a hundred years, the previous rate of 12.5%, which oil and gas companies paid for federal drilling rights, had remained unaltered. This federal rate was conspicuously below the charges imposed by various states and private landowners for drilling leases on state-owned or private lands.
While the new rule stops short of banning new oil and gas leasing on public lands, as advocated by several environmental organizations and pledged by President Joe Biden during his 2020 campaign, officials suggest that the proposal would stimulate a more responsible leasing approach, rendering better returns to U.S. taxpayers. The rule integrates provisions of the climate legislation, known as the Inflation Reduction Act, as well as the 2021 infrastructure law and suggestions from a report issued by the Interior Department on oil and gas leasing in November 2021.
Laura Daniel-Davis, the principal deputy assistant Interior secretary for land and minerals management, expressed that the new rule “ensures a fair return to taxpayers, sufficiently reckons environmental impacts, and curbs speculative activities by oil and gas companies.” She added that the Interior is dedicated to “fostering a transparent, inclusive, and equitable leasing and permitting process that benefits the public interest and safeguards our public lands’ natural and cultural resources.”
The new royalty rate, stipulated by the climate law, is projected to stay effective until August 2032, post which it may increase. According to the Interior Department, the elevated rate could amplify costs for oil and gas companies by approximately $1.8 billion in that time frame.
The rule also proposes that the minimum leasing bond paid by energy corporations rise to $150,000, a significant leap from the preceding $10,000 set in 1960. The increased bonding requirement aims to secure companies’ compliance with their duties to clean up drilling sites after operations or seal abandoned wells.
Officials indicated that the previous bond amount was insufficient to stimulate companies to act responsibly and did not cover potential costs for well reclamation. Consequently, taxpayers often shoulder the burden of cleaning up abandoned or exhausted wells if operators refuse to or declare bankruptcy. Innumerable “orphaned” oil and gas wells and forsaken coal and hard rock mines pose serious safety risks while causing sustained environmental damage.
The oil industry anticipates that the rule change would dissuade oil and gas production in the U.S. The American Petroleum Institute’s Vice President, Holly Hopkins, contended that “Responsible development of federal lands is crucial to meet the escalating demand for affordable, reliable energy while curbing (greenhouse gas) emissions.”
Thursday’s proposal was issued following an Interior report on federal oil and gas leasing in November 2021. Biden directed a halt in federal oil and gas lease sales due to climate change concerns and ordered the report soon after taking office in January 2021.
The moratorium faced staunch criticism from congressional Republicans and the oil industry, even as many environmentalists and Democrats encouraged Biden to make the leasing pause permanent.
The courts overturned the moratorium, and oil and gas lease sales have recommenced, with some sales even being mandated by the climate law, following a compromise with Democratic Sen. Joe Manchin of West Virginia.
Simultaneously, another Biden administration proposal aspires to put conservation and industry on an equal footing on public lands. The Bureau of Land Management’s (BLM) plan could allow conservationists and others to lease federally owned land for restoration, analogous to the process oil companies undergo to acquire leases for drilling and ranchers for grazing cattle.
Proponents of the plan, predominantly environmentalists, believe it would favor wildlife, outdoor recreation, and conservation. Critics, including Republican lawmakers and the agriculture industry, argue that it might exclude mining, energy development, and agriculture.
Both the rules concerning oil and gas and public lands usage are anticipated to become official next year.