Oil and gas companies must pay more to drill on federal lands under new Biden administration rule

WASHINGTON (AP) — Oil and gas companies will have to pay more to drill on federal lands and satisfy stronger requirements to clean up old or abandoned wells under a final rule issued Friday by the Biden administration.

The Interior Department’s rule raises royalty rates for oil drilling by more than one-third, to 16.67%, in accordance with the sweeping 2022 climate law approved by Congress. The previous rate of 12.5% paid by oil and gas companies for federal drilling rights had remained unchanged for a century. The federal rate was significantly lower than what many states and private landowners charge for drilling leases on state or private lands.

The new rule does not go so far as to prohibit new oil and gas leasing on federal lands, as many environmental groups have urged and President Joe Biden promised during the 2020 campaign. But officials said the proposal will lead to a more responsible leasing process that provides a better return to U.S. taxpayers and focuses oil and gas drilling in areas most likely to be developed, especially those with existing infrastructure and a high potential for oil and gas reserves.

The rule also will increase the minimum leasing bond paid by energy companies to $150,000, compared with the previous $10,000 established more than 60 years ago. The higher bonding requirement is intended to ensure that energy companies meet their obligations to clean up drilling sites after they are finished drilling or cap wells that are abandoned.

The plan codifies some provisions — including royalty hikes for at least 15 competitive lease sales — that have been enforced on an interim basis since passage of the climate law, known as the Inflation Reduction Act, in August 2022. The rule also incorporates provisions in the 2021 infrastructure law and recommendations from an Interior Department report on oil and gas leasing issued in 2021. That report recommended an overhaul of the oil and gas program to limit areas available for energy development and raise costs for oil and gas companies to drill on public lands and waters.

“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 Friday.

Along with efforts to clean up so-called orphaned, or abandoned, wells, “these reforms will help safeguard the health of our public lands and nearby communities for generations to come,” Haaland said. The rule also will ease pressure to develop areas that contain sensitive wildlife habitat, cultural resources or recreation sites, she said.

The new royalty rate codified by the climate law is expected to remain in place until August 2032, after which it can be increased. The higher rate would increase costs for oil and gas companies by an estimated $1.8 billion in that period, according to the Interior Department.

The American Petroleum Institute, the oil industry’s top lobbying group, said it was reviewing the rule to ensure Biden’s Democratic administration was encouraging “fair and consistent access to federal resources” used by oil and gas companies.

“As energy demand continues to grow, oil and natural gas development on federal lands will be foundational for maintaining energy security, powering our economy and supporting state and local conservation efforts,” API vice president Holly Hopkins said in a statement. “Overly burdensome land management regulations will put this critical energy supply at risk.”

Environmental groups hailed the rule change as a way to ensure accountability from energy companies that have long had cheap access to federal lands.

“For far too long, oil and gas companies have been profiting off of giveaways to drill on our public lands. This rule will finally curtail some of these wasteful handouts to the fossil fuel industry,” said Josh Axelrod, senior policy advocate with the Natural Resources Defense Council. “Communities, conservationists and taxpayer advocates have been demanding many of these changes for decades, and it’s great news that the Biden administration is acting on this today.”

The Center for Biological Diversity, another environmental group, faulted the administration for failing to address the climate crisis directly by phasing out drilling on public lands.

“Updating oil and gas rules for federal lands without setting a timeline for phaseout (of drilling) is climate denial, pure and simple,” said Gladys Delgadillo, a climate campaigner for the Arizona-based group. “Public lands should be places for people to enjoy nature and wildlife to roam free, not hotspots for toxic pollution.”

The change in bonding rates is a key element of the new rule, officials said. The previous rate of $10,000, established in 1960, was far too low to force companies to clean up old drilling sites and did not cover potential costs to reclaim a well, officials said. As a result, taxpayers frequently end up covering cleanup costs for abandoned or depleted wells if an operator refuses to do so or declares bankruptcy. Hundreds of thousands of orphaned oil and gas wells and abandoned coal and hardrock mines pose serious safety hazards, while causing ongoing environmental damage.

The Interior Department has made available more than $1 billion in the past two years from the infrastructure law to clean up orphaned oil and gas wells on public lands. The new rule aims to prevent that burden from falling on taxpayers in the future.

Bureau of Land Management Director Tracy Stone-Manning, whose agency issued the new rule, said it “will help protect critical wildlife habitat, cultural resources and recreational values” while ensuring a fair return for taxpayers. The bureau manages more than 245 million acres of public lands, mainly in the West.

Lawmakers were divided by party.

Arizona Rep. Raul Grijalva, the top Democrat on the House Natural Resources Committee, called the rule an important step to rein in oil and gas companies.

“When Big Oil uses our public lands, it stands to reason they should be giving American taxpayers a fair return for the privilege,” he said. “That’s why Democrats worked so hard to pass reforms in the Inflation Reduction Act to return some balance to a leasing system that has favored polluters for far too long.”

Wyoming Sen. John Barrasso, the top Republican on the Senate Energy and Natural Resources panel, said the rule imposes unfair costs on energy companies that will result in less drilling, fewer jobs and more dependence on oil from the Middle East.

“As a candidate, Joe Biden recklessly threatened to end oil and natural gas production on federal lands,” Barrasso said. “As president, he is doing all he can to make it economically impossible to produce energy on federal lands.”