BLM proposes costlier lease terms as mandated by 2022 budget deal

The Interior Department’s Bureau of Land Management (BLM) is proposing costlier terms for oil and gas leasing on federal lands in keeping with the mandates of Inflation Reduction Act of 2022, plus a few extra policy tweaks that the Biden administration has wanted.

The Inflation Reduction Act, a tax and spending bill shaped by negotiations between the administration, leading congressional Democrats and Sen. Joe Manchin (D-W.Va.), required an array of higher costs for oil and gas companies that want to operate on federal land (OGJ Online, July 28, 2022).

The BLM released its proposed Fluid Mineral Leases and Leasing Process rule July 20 to lock those terms into regulations for new onshore leasing, and to add a few extra provisions. Royalty rates for all new leases will be 16.67% until Aug. 16, 2032, after which 16.67% will be the minimum; minimum bids will be $10/acre, up from $2; minimum rental rates will rise by stages over 10 years to $15/acre per year, after which it can be increased; a fee of $5/acre will be required for expressions of interest.

The proposed rule also will increase minimum lease bond amount to $150,000 from the existing level of $10,000.

“The current, outdated bond requirement increases the risk that taxpayers will end up covering the cost of reclaiming wells in the event the operator refuses to do so or declares bankruptcy,” Interior said in a press release.

The proposed rule would help steer oil and gas development away from “important wildlife habitat or cultural sites, and instead toward lands with existing infrastructure or high production potential,” as an Interior official put it. That idea may prove problematic, given that production potential commonly cannot be determined without drilling exploration wells.

More contested rule

Because so much of the proposed rule was mandated by law, its most prominent features are not likely to be contested by companies. The oil and gas industry and congressional Republicans are much more concerned about another BLM proposed rule, the Conservation and Landscape Health Rule, published Apr. 3 in the Federal Register.

The conservation rule, if finalized as proposed, would create something new, conservation leases, which might obstruct oil and gas leasing in large areas of federal lands. Industry and Republican critics say that would upend the “multiple use” requirements of the Federal Land Policy and Management Act (FLPMA), the 1976 statute that guides much of BLM’s management of public lands.

Part of what bothers oil and gas groups and Republicans so much about the proposed conservation rule is its vagueness as a land management planning rule.

At a June 15 hearing of the Natural Resources Committee, Kathleen Sgamma, president of the Western Energy Alliance, testified that the proposed conservation rule would “violate the multiple-use and sustained yield mandate by closing or restricting unnecessarily large amounts of land to productive uses. Not only would the rule change the face of FLPMA, but it attempts to enable BLM to sidestep its statutory mandates in the Mineral Leasing Act, the Taylor Grazing Act and the 1872 mining law.”