Our federal government has historically allowed oil and gas companies to lease America’s public lands across the West for exploration and drilling. One reason for doing this has been to spur economic activity; the other is to generate revenue to the U.S. Treasury on behalf of the landowners…you, me, and the rest of the taxpaying public.
In recent years this oil and gas leasing program, which is run by the Bureau of Land Management (BLM), has fallen short on both counts.
The process is supposed to work like this: Leases are offered at auction for lands that have been nominated by interested parties. The idea being that these interested parties, ostensibly oil and gas companies, will bid against each other for these leases and drive up the price.
That only works if the parcels being offered up for lease have a strong potential to produce lots of oil. However, too often that is not the case.
One problem is that BLM allows our public lands to be nominated for leasing anonymously, and pretty much accepts any nomination without scrutiny. This has allowed oil companies and other speculators to nominate huge swaths of land for leasing, often in an attempt to hide which parcels they are actually interested in from potential competition.
That brings us to another big problem, price. When the competitive bidding process is thwarted, BLM offers leases on the nominated land for a paltry minimum bid of $2 per acre—which is essentially a big government handout.
In addition to shortchanging the American taxpayer to the tune of $12.4 billion between 2012, these practices are also shortchanging the Western states that depend on their share of that oil and gas revenue.
This $2 bargain basement price—and the even lower $1.50 price for acres offered but not bid on—has encouraged companies to acquire, hold leases on, and essentially lock up, vast swaths of public land that have low potential for development.
In most cases, land with low oil potential has greater value to the public if it is managed and used for other purposes, such as water supply, outdoor recreation, wildlife habitat, grazing, or other forms of energy. This is the whole concept behind multiple-use management, which has historically been a guiding principle on our public lands.
Over the past four years, we experienced a massive leasing binge that subordinated all other land values to oil and gas leasing. An area the size of Tennessee was offered up for bid across the West. Large lease sales were being held even as oil prices were crashing due to the pandemic.
So unhinged from reality was that leasing binge, that roughly 2 million acres of public land in Nevada were offered for lease despite the fact that Nevada, a state known for hard rock mining, is geologically devoid of oil and gas.
The result was easy to predict. By ignoring the market (and geology), that administration ended up giving away even more leases for the minimum bid and getting lower returns on those where competitive bidding did occur.
Leasing Pause
In January, President Biden issued an executive order to place a pause on public land oil and gas leasing in order to explore how the system can be improved. This is a long-overdue prudent step to restoring some balance and sanity to our nation’s oil and gas leasing program, but only if the pause is actually used to implement critical reforms.
As happens with almost any special interest that fears losing a sweetheart deal at taxpayer expense, some in the oil and gas industry (or elected officials doing their bidding) are attacking this pause, falsely claiming that it is going to cost jobs, increase fuel prices, or make us more dependent on foreign oil.
Not true. They are simply making stuff up. The industry currently has 22.1 million acres under lease, and 7,700 unused drilling permits. Furthermore, the heads of Devon Energy, Occidental Petroleum, Marathon Oil, and ConocoPhillips have all said that the leasing pause will not affect their operations.
Reform Opportunities
As part of its leasing pause, the Biden administration’s Department of Interior (DOI) plans to release an interim report this month that we expect will identify how the system is broken and what reforms are needed. Still, the administration can only do so much. Legislation is needed to truly fix this.
Fortunately, there are some important reform bills making their way through Congress. Here is a description of the major ones supported by CRS:
Fair Returns for Public Lands Act
U.S. Senators Chuck Grassley (R-IA) and Jackie Rosen (D-NV) have introduced the bipartisan Fair Returns for Public Lands Act, which would increase the onshore royalty rate to 18.75 percent (the same rate as for offshore oil), raise the minimum bid amount for leases from $2 per acre to $10 per acre, establish a fee of at least $15 per acre for nominations, and increase the rental rate on oil and gas leases.
The Congressional Budget Office has estimated that raising the royalty rate alone would raise $200 million in federal revenue, and an equivalent amount of state income, over the next decade.
End Speculative Oil and Gas Leasing Act of 2021
The End Speculative Oil and Gas Leasing Act has been introduced by Senator Catherine Cortez Masto (D-NV). This bill will make it tougher for speculators to use oil and gas leases to imprison lands that have little or no prospect for development. These lands could be better used for other purposes such as hunting, fishing, and other outdoor recreation.
This bill would prevent the Bureau of Land Management (BLM) from offering public lands up for lease that either 1) have not had an assessment of its oil and gas potential, or 2) have been found to have little or no potential for the development of oil or gas resources.
Orphaned Well Clean Up Legislation
The Orphaned Well Clean-up and Jobs Act has been introduced by U.S. Representative Teresa Leger Fernández (D-NM). This piece of legislation, if passed, would allow for the clean-up of “orphaned” oil and gas wells across the United States that are leaking methane. The bill would designate $8 billion for clean-up of 56,000 orphaned well sites around the country.
More importantly, it would strengthen federal oil and gas bonding requirements to guarantee that going forward oil and gas companies, not taxpayers, bear the costs of well plugging and reclamation. The bill would establish a minimum bonding amount of $150,000 per mine, or $500,000 for per entity with multiple mines in a particular state.
In addition, Senator Michael Bennet (D-CO) re-introduced the Oil and Gas Bonding Reform and Orphaned Well Remediation Act. Similar to the House bill detailed above, this bill would increase bonding requirements and provide a good chunk of funding to clean up orphaned oil and gas wells.
Either of these orphaned well bills, if passed and signed into law, would help ensure that the cleanup burden for orphaned wells will remain with the oil and gas companies should they go bankrupt—not taxpayers.
CRS president David Jenkins said in a recent press statement regarding introduction of the Bennet bill, “Personal, corporate, and fiscal responsibility are long-held conservative values, but none of these are being upheld when there are currently at least 14,400 orphaned wells on federal lands alone. Oil and gas companies are clearly gaming the system, extracting all the profits while offloading the enormous cleanup costs on the American public. It’s not responsible, it’s not fair, and it’s certainly not conservative.”
Conclusion
The federal government’s system for leasing out America’s public lands is outdated and in desperate need of reform. Bipartisan support is needed for these bills and for restoring much needed balance to the management of our public lands.
Safeguarding our nation’s remaining undeveloped public lands should be a priority for both sides of the aisle. These natural resources sustain life and provide important ecological services for all Americans – present and future.
As President Reagan once said, “If we’ve learned any lessons during the past few decades, perhaps the most important is that preservation of our environment is not a partisan challenge; it’s common sense. Our physical health, our social happiness, and our economic well-being will be sustained only by all of us working in partnership as thoughtful, effective stewards of our natural resources.”
Reforming our broken oil and gas leasing system is one important way for us to be “thoughtful, effective stewards,” not only of our natural resources, but of our nation’s fiscal health as well.
