US Broadly Raises Costs for Oil, Gas Companies to Drill on Federal Lands — OPIS

The Biden administration is broadly increasing the costs for oil and gas companies to drill on federal lands, including bonding requirements, royalty rates and minimum bids, to better cover possible environmental cleanup costs and increase returns to the public.

On Friday, the Department of Interior's Bureau of Land Management said in its final rule that its federal oil and gas leases will require a minimum bond of $150,000 and a minimum statewide bond of $500,000, compared with a previous lease bond of $10,000 that was set in 1960. Bond amounts will be adjusted for inflation every 10 years, it said.

According to the nonpartisan Government Accountability Office, thousands of idled oil wells managed by BLM pose a risk of becoming orphaned, a situation in which wells have no responsible or liable parties. The increased bonds will better reflect the actual costs of reclaiming wells and will mean those costs are borne by oil and gas companies rather than taxpayers, BLM said.

In addition, BLM's royalty rates for leases are set at 16.67% until mid-August in 2032 - 10 years after enactment of the Inflation Reduction Act. After 2032, 16.67% will become the minimum royalty rate. Previously, the minimum royalty rate was 12.5%, it said.

Also, the minimum amount companies can bid at federal auctions for oil and gas leases increases to $10 per acre, up from $2 per acre. After August 2032, that amount will be regularly adjusted for inflation, BLM said.

Leases will also include a rental of $3 per acre per year during the first two-year period beginning upon lease issuance, then $5 per acre per year for the subsequent six years, and then $15 per acre per year thereafter. After August 2032, those rental rates will become minimums and are subject to increase, BLM said.

The rule will help steer oil and gas development away from important wildlife habitats and important cultural sites, as BLM said it prefers to "offer lands for lease that are close to existing infrastructure or have high potential for oil and gas production."

"These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public, and protect taxpayers from being saddled with the costs of environmental cleanups," Interior Secretary Deb Haaland said in a statement.

The comprehensive increases to the cost of oil and gas leases came at a time when the U.S. is projected to pump record volumes of crude oil for the next two years, the Energy Information Administration said in its latest forecast this week.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Frank Tang, ftang@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com

(END) Dow Jones Newswires

April 12, 2024 14:37 ET (18:37 GMT)

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