On July 20, 2023, DOI announced a proposed rule which would revise outdated fiscal terms of the onshore federal oil and gas leasing program – including for bonding requirements, royalty rates, and minimum bids. The rule aims to increase returns to the public and disincentive speculators or less responsible actors.
The rule proposes to increase the minimum lease bond amount to $150,000 and the minimum statewide bond to $500,000, and it proposes to eliminate nationwide and unit bonds. The existing lease bond amount of $10,000 — established in 1960 — no longer provides 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.
The rule would help steer oil and gas development away from important wildlife habitat or cultural sites, and instead toward lands with existing infrastructure or high production potential.
Proposed changes to royalty rates reflect provisions of the Inflation Reduction Act. Royalty rates for leases issued for 10 years after the effective date of the Inflation Reduction Act are 16.67 percent. After August 16, 2032, the rate of 16.67 percent will become the minimum royalty rate.
The rule would codify a provision of the Inflation Reduction Act that increased the national minimum bid from $2 per acre to $10 per acre, or fraction thereof, and after 10 years regularly adjusts that amount for inflation. The minimum acceptable bid is important because it establishes the starting bid at the BLM’s oil and gas lease auctions.
Pursuant to the Inflation Reduction Act, for leases issued in the 10 years after its enactment, the proposal includes a rental of $3 per acre, or fraction thereof, per year during the first 2-year period beginning upon lease issuance, $5 per acre per year, or fraction thereof, for the following 6 years, and then $15 per acre, or fraction thereof, per year thereafter. After August 16, 2032, those rental rates will become minimums and are subject to increase.
The Inflation Reduction Act established a new fee for expressions of interest. The proposed rule includes that fee, which is $5 per acre, or fraction thereof.