US Department of the Interior proposes revised leasing regulations

Offshore staff

WASHINGTON, DC — Oil and gas companies would have to pay more to drill on public lands and satisfy stronger requirements to clean up old or abandoned wells under a new rule announced Thursday by the Biden administration.

A rule proposed by the Interior Department raises royalty rates for oil drilling by more than one-third, to 16.67%, in accordance with the Inflation Reduction Act (IRA) passed into law last year. The previous rate of 12.5% paid by oil and gas companies for federal drilling rights had remained unchanged for a century.

The plan codifies provisions in the IRA, as well as the 2021 infrastructure law and recommendations from an Interior report on oil and gas leasing issued in November 2021.

The new royalty rate set by the IRA is expected to remain in place until August 2032, after which it can be increased. The higher rate would increase costs for oil and gas companies by an estimated $1.8 billion in that period, according to the Interior Department.

The rule also would increase the minimum leasing bond paid by energy companies to $150,000, up from the previous $10,000 established in 1960. The higher bonding requirement is intended to ensure that companies meet their obligations to clean up drilling sites after they are done or cap wells that are abandoned.

The previous level was far too low to force companies to act and did not cover potential costs to reclaim a well, officials said. As a result, taxpayers frequently had to pay for cleanup costs for abandoned or depleted wells if an operator refused to do so or declared bankruptcy. 

The Interior Department said that it has made available more than $1 billion over the past two years from the infrastructure law to clean up orphaned oil and gas wells on public lands. The new rule is reportedly designed to prevent that burden from falling on taxpayers in the future. The new rule is expected to become final next year.

07.21.2023