President Biden’s administration in the US issued a final rule on Friday, mandating oil and gas companies to increase returns and address environmental damages due to drilling on public lands to “revise outdated fiscal terms of the onshore federal oil and gas leasing program”.

The US Interior Department of Land Management (BLM) announced a new rule raising royalty rates for oil drilling to 16.67% from 12.5%, formalising provisions in the 2022 Inflation Reduction Act

This rule marks the BLM’s first comprehensive update to the federal onshore oil and gas leasing framework since 1988 and the first increase in royalty rates in more than 100 years.

“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 clean-ups,” said US Secretary of Interior Deb Haaland.

The rule will guide BLM’s efforts to concentrate oil and gas leasing in areas that are more likely to attract development, such as regions with existing infrastructure and significant oil and gas potential. This will help reduce development pressure on areas that contain sensitive wildlife habitats, cultural resources, high recreational usage, or other special resources and values.

The government has also updated the minimum bonding amount for oil and gas operations to ensure taxpayers do not have to pay to clean up abandoned wells. The rule mandates a minimum lease bond of $150,000, up from the $10,000 bond established in 1960. The statement states: “The bond amounts will be adjusted for inflation every ten years.” 

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The minimum bid at federal oil and gas lease auctions increases to $10 per acre from $2 per acre and will be readjusted for inflation after 16 August 2032.

Leases will include a rental of $3 per acre per year during the first two years, beginning upon lease issuance, then $5 per acre per year for the subsequent six years, and then $15 per acre per year. 

After 16 August 2032, these rental rates will become minimums and are subject to increase. Previously, companies paid $1.50 per acre for each of the first five years of holding a lease, then $2 per acre for the next five years.

Principal Deputy Assistant Secretary for Land and Minerals Management, Steve Feldgus, said: “This rule will give the industry additional certainty about lease terms moving forward and give the public the certainty that their voices will be heard when the BLM is proposing areas for leasing.”

“It also addresses a number of longstanding Government Accountability Office (GAO) and Inspector General recommendations, ensuring we have a modern oil and gas leasing program that protects the public’s interests,” he added. 

The GAO has highlighted that the BLM manages several inactive wells that could become abandoned and pose a threat. Oil and gas companies will now cover the expenses of reclaiming the wells instead of taxpayers, increasing bonds.