Biden Administration Implements New Oil and Gas Leasing Rules to Increase Royalty Rates

As of the 18th of March, the Biden administration has introduced new regulations affecting oil and gas companies that operate on public lands. The Interior Department's final rule stipulates that companies will face higher costs for drilling and will be subject to more stringent requirements for cleaning up old or abandoned wells.

Raising Royalty Rates and Codifying Provisions

Under the new regulations, oil drilling royalty rates will increase by over one-third to 16.67%, in compliance with the 2002 climate law approved by Congress, marking the first change in the century-old rate of 12.5%. This adjustment brings the federal rate more in line with what many states and private landowners charge for drilling leases on state or private lands.

The new rule also codifies provisions in the climate law and the 2021 infrastructure law, as well as recommendations from a 2021 Interior Department report on oil and gas leasing.

Focusing on Responsible Leasing Process

It's important to note that while the new regulations don't prohibit new oil and gas leasing on public lands, they aim to introduce a more responsible leasing process that ensures a better return to U.S. taxpayers, as stated by Interior Secretary Deb Haaland.

Protecting Public Lands and Taxpayers

The Interior Department emphasizes that the new rule is a significant reform that will reduce wasteful speculation, increase returns for the public, and protect taxpayers from incurring the costs of environmental cleanups.

Furthermore, the rule is designed to safeguard the health of public lands and nearby communities, particularly through efforts to clean up abandoned wells and by focusing oil and gas leasing in areas with existing infrastructure and high potential for development. This shift is expected to alleviate pressure on sensitive wildlife habitat, cultural resources, and recreation sites.

Financial Impact and Increased Bonding Requirements

The new royalty rate set by the climate law will remain in effect until August 2032, resulting in an estimated $1.8 billion increase in costs for oil and gas companies during that period. Additionally, the minimum leasing bond paid by energy companies will rise to $150,000, a substantial increase from the previous $10,000 established in 1960.