The federal Bureau of Land Management (BLM) has announced new rules relating to oil and gas production on public lands.According to a press release issued by BLM, “The Fluid Mineral Leases and Leasing Process rule revises outdated fiscal terms of the onshore federal oil and gas leasing program – including for bonding requirements, royalty rates, and minimum bids – which will increase returns to the public and disincentivize speculators and irresponsible actors. The rule is the BLM’s first comprehensive update to the federal onshore oil and gas leasing framework since 1988, the first update to minimum bonding levels since 1960, and the first increase in royalty rates in more than 100 years.”The key elements of the new rules by BLM are as follows:
Bonding Requirements: The rule increases the minimum lease bond amount to $150,000 and the minimum statewide bond to $500,000, and it eliminates nationwide and unit bonds. The previous lease bond amount of $10,000 -- established in 1960 -- no longer provided an adequate incentive for companies to meet their reclamation obligations, nor does it cover the potential costs to reclaim a well should this obligation not be met, leaving taxpayers at risk for the cost of cleanup. Bond amounts will be adjusted for inflation every ten years.
Protecting Wildlife and Cultural Resources: The rule helps steer oil and gas development away from important wildlife habitat and important cultural sites by establishing BLM's preference to offer lands for lease that are close to existing infrastructure or have high potential for oil and gas production.
Fiscal Terms: A number of fiscal terms are changed to reflect provisions of the Inflation Reduction Act, including:
Royalty rates for leases are set at 16.67 percent until August 16, 2032—ten years after enactment of the Inflation Reduction Act—then 16.67 percent will become the minimum royalty rate. Previously, the minimum royalty rate was 12.5 percent.
Minimum bids: The minimum amount companies can bid at auctions for federal oil and gas leases increases to $10 per acre, up from $2 per acre. After August 16, 2032, that amount will be regularly adjusted for inflation.
Base, or minimum, rental rate: Leases will 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 6 years, and then $15 per acre per year thereafter. After August 16, 2032, those rental rates will become minimums and are subject to increase. Previously, companies paid $1.50/acre for each of the first five years of holding a lease, then $2/acre for the next five years.
Expressions of Interest: The Inflation Reduction Act established a new $5/acre fee for expressions of interest. The rule implements how the fee will be collected.
Independent producers operating on federal land in California will be required to adjust to these new rules going forward. CIPA staff will continue to engage with BLM California related to the rule’s implementation.
For more information, contact Sean Wallentine.