The Biden administration will resume federal oil and gas leasing in June with a large reduction in acres available for drilling and a historic royalty rate increase. On April 18, 2022, the Bureau of Land Management (“BLM”) issued notices of oil and gas lease sales for approximately 144,000 acres of federal land in Colorado, New Mexico, Nevada, North Dakota, Montana, Utah and Wyoming. BLM scheduled the June 2022 onshore lease sales nearly a year after the U.S. District Court for the Western District of Louisiana enjoined the Biden administration's self-described “pause” of the federal oil and gas leasing program—an action taken pursuant to Executive Order 14008: “Tackling the Climate Crisis at Home and Abroad.”
The June 2022 leasing decisions are notably different from prior sales. First, BLM eliminated 80% of the federal acreage originally nominated for competitive leasing (473 of the 646 previously identified parcels) following environmental review. The available acreage largely focuses on parcels where oil and gas development has already occurred. Second, BLM increased the federal royalty rate for new competitive oil and gas leases to 18.75%, the first ever increase from the Mineral Leasing Act's minimum royalty rate of 12.5%. The administration pointed to the Department of the Interior's November 2021 report on the federal oil and gas leasing program, which called for a “fair and equitable return” to American taxpayers as a reason for the royalty rate increase. Third, the environmental assessments accompanying the June lease sale notices contain more robust greenhouse gas emissions and climate change impact analyses than most prior lease sales. For example, BLM estimated the direct and indirect greenhouse gas emissions that may be produced from developing each lease parcel and compared those emissions to national and state annual emissions (for example, the proposed Wyoming lease sales would represent between 0.153%–0.389% of state greenhouse gas emissions and between 0.086% to 0.207% of national emissions). BLM also considered the total emissions from development of all lease parcels offered during the June 2022 lease sales (approximately 146.56 metric tons of carbon dioxide equivalent per year). To estimate the economic cost of the direct and indirect greenhouse gas emissions associated with lease development, BLM applied the Office of Management and Budget's 2021 interim social cost of greenhouse gas estimates. Similar to past federal lease sales, each environmental assessment includes a “finding of no significant impact,” allowing BLM to complete the National Environmental Policy Act review process without preparing an environmental impact statement.
The announcement of the June 2022 lease sales has been met with mixed reactions. Although many oil and gas companies are eager to purchase federal leases, the higher royalty rate will undoubtedly cause companies to reduce bonus bid offers and cut into profit margins, and there is a sentiment among industry stakeholders that the announcement represents nothing more than a Pyrrhic victory. Meanwhile, environmental and community groups are disappointed the Biden administration is holding lease sales at all, regardless of the trimmed down acreage, higher royalty rate, and more robust environmental review, raising the very real prospect of litigation. And adding to the complexity, the lease sales take place against the global backdrop of rising energy prices, skyrocketing inflation and demands for swift action to combat climate change. These dynamics cast significant uncertainty onto the June 2022 lease sale process, and it will be important for stakeholders to understand the BLM's approach and rationale for its decisions. Our attorneys and policy advisors experienced in federal oil and gas leasing issues would be happy to answer any questions you or your company may have about the June 2022 lease sales.
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