Death by a Thousand Cuts –  Revamp of Federal Oil and Gas Program

In Home, News by wp_sysadmin

3 things to know about Biden’s oil regs
Heather Richards, ENERGYWIRE, July 24, 2023

The Bureau of Land Management revamp of federal oil and gas development would put the Biden administration’s stamp on the program.

The Biden administration’s proposed revamp of the federal oil and gas program caught plenty of notice from Republican lawmakers and industry for how it would dramatically increase the cost of drilling on public lands.

But even the draft regulation’s more obscure elements could make waves for drillers — and federal coffers.

Oil industry observers are still wading through the more than 300-page rule package published by the Bureau of Land Management on Thursday, but all agree that the administration’s new regime for public lands would have drillers paying more. That includes higher royalties and — for the first time since the 1950s and ’60s — hiking up required bonding, the money secured ahead of drilling to cover cleanup costs when wells are abandoned.

“The big takeaway that many have seen from the proposed rules is that, if enacted, exploring for oil and gas on federal lands will be more expensive,” said Eric Money, an attorney with Hall Estill specializing in oil and gas law.

Some of these changes were mandated under the Democrats’ climate law, last year’s Inflation Reduction Act, such as a 16.67 royalty rate that lasts until 2032. And the Biden administration was expected to act on bonding changes after it failed to get them in the final version of the Inflation Reduction Act due to deals with pro-oil lawmakers.

But the proposed rulemaking would also make changes praised by conservationists: setting down priorities for where drilling rights should be allowed and potentially killing permit renewals to drill wells.

“Overall, it’s tidying the standards,” said Shannon Anderson, a lawyer for the Powder River Basin Resource Council in Wyoming.

This is part of the administration’s strategy to leave its thumbprint of reform on the nation’s leasing program — one aspect of President Joe Biden’s climate and clean energy legacy.

All this tracks with the White House’s larger policy platform that’s focused on advancing renewables like offshore wind and solar, while viewing some oil and gas development as necessary on federal lands until the country is in a position to depend on cleaner forms of energy. The proposed reforms also mirror a report published by Interior in Biden’s first year in office that concluded the nation’s oil and gas leasing program was shortchanging the government and taxpayer out of revenue.

Kathleen Sgamma, president of the Western Energy Alliance, said the administration has mischaracterized the oil program as needing dire fiscal reforms, and sees the draft rules released last week as an attempt to shrink drilling on federal land.

“Oil and natural gas companies provide nearly $30 for every dollar BLM spends administering the onshore program, a return the government achieves nowhere else,” she said. “The rule will further ensure industry consolidation and participation by only the largest companies as small businesses are driven out.”

The big-ticket items like bonding — the BLM is proposing to raise a single lease’s bond from today’s $10,000 minimum to $150,000 — are sure to spark debate for weeks to come as the Biden administration weighs what it will keep, and what may be left behind, in a final rule. But here are three significant, but more under the radar, proposed changes to the federal oil and gas program.

To lease or not to lease

One of Interior’s areas of focus under the Biden administration has been to rein in where oil and gas drillers should be allowed to pick up new drilling rights, and the draft rules are no exception.

The proposal would order BLM officials to prioritize areas for lease that have a high potential for oil and gas — that means relying on estimates of where the best development location are, and giving preference to those areas when companies ask for acres to be sold at auction.

This provision is a nod to the frustration conservation groups have long voiced that oil and gas leases are bought by speculators — granting companies long-term development rights — in areas that should instead be valued for recreation, wildlife habitat conservation or tourism.

“Public lands belong in public hands, not tied up in costly and unproductive fossil fuel speculation,” said Rep. Susie Lee, a Nevada Democrat who praised the rules last week.

Speaking to reporters Friday, Russell Kuhlman, the executive director of the Nevada Wildlife Federation, said just about 3 percent of his state’s leased public lands have produced oil in the last two decades. His position is that this gives oil and gas drillers access and priority on lands that should instead elevate recreation and conservation.

“With these new rulings, the BLM is going to have a little more authority to say, ‘You know, these lands that have no potential for oil and gas can be used for other things,’” he said.

This is not, however, an approach that oil and gas industries agree with.

Drillers argue that exploration, often in low-potential areas, has led to some of the industry’s largest discoveries. Additionally, areas that are low potential now might be drilled in the future with different technology or expertise.

“The Powder River Basin, the Bakken used to be considered low potential, because we hadn’t cracked the code on how to develop that geology,” said Sgamma, referring to large oil and gas plays in Wyoming and North Dakota.

“The beauty of the federal system is that BLM administers it, protects the land, regulates it, but it’s up to the operator to take the risk,” Sgamma said. “BLM is not the best arbiter of where the oil and natural gas is.”