U.S. Oil & Gas Industry, Affected States Oppose Reforms to Federal Leasing Program

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Researched by Industrial Info Resources (Sugar Land, Texas)--Stakeholders across the U.S. Oil & Gas Industry have their thoughts on a recent report by the U.S. Department of the Interior (DOI) (Washington, D.C.) that recommends a series of reforms to the federal leasing program, including raising the cost to drill on public lands and waters to be more in line with what states and private landowners charge. States with high levels of oil and gas production on both state and federal lands, like Wyoming, and industry groups alike oppose the proposed changes, while environmental activists have mixed emotions and proponents are cheering the long-overdue efforts.

"This review outlines significant deficiencies in the federal oil and gas program, and identifies important and urgent fiscal and programmatic reforms that will benefit the American people," U.S. Interior Secretary Deb Haaland said in a press release. The program "fails to provide a fair return to taxpayers, even before factoring in the resulting climate-related costs that must be borne by taxpayers," according the report.

Earlier this week, Wyoming Governor Mark Gordon criticized the DOI's recommendations. These actions, he said, would only result in "driving more activity to foreign countries and to states with fewer federal lands and minerals." Wyoming is the top producer of natural gas on federal lands and the number two producer of onshore oil, according to the U.S. Bureau of Land Management. The Petroleum Association of Wyoming also took aim, and noted "overblown claims" regarding the federal revenue that leasing generates, arguing the mineral program is second only to the Internal Revenue Service (IRS) in revenue production for the government.

According to a news report in E&E News, on December 1, a coalition of fossil fuel groups that included the American Petroleum Institute, National Ocean Industries Association and Independent Petroleum Association of America wrote a letter directly to Senator Joe Manchin (D-West Virginia), chairman of the Senate Energy & Natural Resources Committee, asking him to reject proposed increases to royalty rates as part of a $1.7 trillion reconciliation package passed by the House in early November. The legislation seeks to raise the onshore rate from 12.5% to 18.75%; the rate for offshore leases would be no less than 14%. "We seek to be constructive partners in the development of thoughtful and balanced national policy to address climate change," the group wrote. "However, punitively targeted provisions ... will hinder, not help this effort."

The report found an "outdated" federal oil and gas program in which the minimum royalty rate for onshore drilling (12.5%) has not been raised for 100 years. The current rate is significantly less than what states charge, especially those with strong oil and gas production and large reserves: Texas (20%-25%), New Mexico (18.75%-20%), Wyoming and Montana (each 16.67%) all outpace the government's rate. The DOI did not make a recommendation for offshore drilling.

Environmental activists signaled mixed emotions after the report's release. Some applauded the report's suggested reforms, even though the report does not recommend an outright ban on new oil and gas permitting on federal lands. Sara Cawley, a legislative representative for the environmental group Earthjustice (Washington, D.C.), expressed that sentiment: "The report clearly demonstrates the urgency for Congress to act now and address the issues outlined in the report," followed by a caveat: "But in other ways, this report falls far short of the promised 'comprehensive review', notably leaving out the climate consequences of continuing to lease public lands and waters to the oil and gas industry."

Athan Manuel, director for Sierra Club's Lands Protection Program, said, "We applaud the Biden administration for recognizing the serious flaws in the current oil and gas leasing program," but added, "To truly tackle the climate crisis, we need to phase out all new leasing for fossil fuels on public lands and offshore."

Drilling on public lands accounts for about 7% of domestically produced oil and 8% of natural gas, according to the report, and federal offshore acreage accounts for about 16% of U.S. oil output.

The report comes after President Joe Biden issued an executive order in January directing a review of existing leasing and permitting practices for fossil fuel development on public lands and waters. For more information, see January 27, 2021, article - Battle Lines Drawn Over Potential Ban on New Oil & Gas Drilling on Federal Land, and January 28, 2021, article - Big Oil, Big Business Slam Biden's Pause on New Oil & Gas Leases on Federal Lands and Waters.

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