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BLM wants leasing regulation changes
Agency proposes significant increases to royalty rates and bonding; only filing fee changes would apply to NPR-A and ANWR Alan Bailey for Petroleum News
The federal Bureau of Land Management has published proposed new regulations that would significantly increase royalty rates and bonding requirements for oil and gas production on federal onshore lands. However, in Alaska the revised regulations would not, in general, apply to the National Petroleum Reserve-Alaska or to the Arctic National Wildlife Refuge -- oil and gas exploration, development and production in NPR-A and ANWR operate under different federal statutes and regulations than other federal onshore land. However, revised fees for filing documents would apply to NPR-A and ANWR, BLM has told Petroleum News.
The proposed regulation revisions would apply elsewhere in Alaska. For example, there is onshore oil and gas potential in the federal Kenai National Wildlife Refuge in the northern Kenai Peninsula.
A balanced approach BLM says that the regulatory changes would ensure a balanced approach to development while also ensuring a fair return for taxpayers and adequate protection for important wildlife habitats and cultural sites. The proposed changes would also align the regulations with the terms of the Bipartisan Infrastructure Law and the Inflation Reduction Act that were passed by Congress in 2021 and 2022.
The agency says that royalty rates for oil and gas production have not been raised for more than 100 years prior to the current administration. Bonding levels have not been raised for 60 years, and minimum bids and rents for oil and gas leases have remained the same for more than 30 years.
Under the proposed regulations, the minimum lease bonding amount would increase from $10,000, as at present, to $150,000. The minimum statewide bond would be $500,000. BLM says that the current bonding rates do not adequately incentivize companies to meet their obligations to reclaim impacted land. Nor are the rates adequate to cover the costs of dealing with disused wells, in the event that the well operator does not conduct the reclamation, perhaps because of bankruptcy. The changes would reduce the financial burden on U.S. taxpayers -- in recent years the Department of the Interior has had to make available more than $1 billion in funding for the cleanup of orphaned wells on federal, state and private lands, BLM says.
The Alaska Oil and Gas Conservation Commission has recently made major increases to the bonding levels for wells drilled in Alaska, with the commission similarly arguing that the existing minimum bonding levels were inadequate to cover the costs of plugging, abandoning and remediating defunct wells. AOGCC bonding requirements for wells drilled anywhere in the state, including on federal land, now range from $400,000 to $30 million, depending on how many wells are drilled.
Minimum royalty rates Under the proposed BLM regulations the minimum royalty rates for oil and gas produced on federal land would increase from the current level of 12.5% to 16.67%. The minimum bid for obtaining a lease would increase from $2 per acre to $10 per acre, with the minimum bid then being adjusted for inflation after 10 years. Rental rates for leases would be $3 per acre, increasing to $5 per acre two years after a lease is issued, and then increasing to $15 per acre after another six years. After Aug. 16, 2032, those rental rates would become minimums, with the rates potentially being increased.
"The Interior Department has taken several steps over the last two years to ensure the federal oil and gas program provides a fair return to taxpayers, adequately accounts for environmental harms, and discourages speculation by oil and gas companies," said Principal Deputy Assistant Secretary for Land and Minerals Management Laura Daniel-Davis. "This new proposed rule will help fully codify those goals and lead to more responsible leasing and development processes."
"This proposal to update BLM's oil and gas program aims to ensure fairness to the taxpayer and balanced, responsible development as we continue to transition to a clean energy economy," said BLM Director Tracy Stone-Manning. "It includes common sense and needed fiscal revisions to BLM's program, many directed by Congress."
Comparison with Alaska By comparison, Alaska has a minimum royalty rate of 12.5% for state lands, although in recent years the state has set a 16.67% royalty rate for some areas. Royalty reductions can be negotiated in certain situations. Rental rates for leases on state land are $10 per acre for the first six years of a lease, increasing to $100 per acre in year seven and to $250 per acre, beginning in year eight. The initial $10 per acre rate can be continued, if there is sustained production from the lease or if there has been reasonable diligence in exploring and developing the lease.
Federal royalty rates in NPR-A can be 12.5% or 16.67%, and rental rates $3 or $10 per acre, depending on the discovery and development potential of the land.
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