WASHINGTON — Oil and gas companies will have to pay more to drill on public lands and meet stricter requirements to clean up old or abandoned wells, under a final rule issued Friday by the Biden administration.
The Interior Department’s rule increases oil drilling royalty rates by more than a third, to 16.67%, in line with the sweeping 2002 climate law passed by Congress. The previous 12.5% rate that oil and gas companies paid for federal drilling rights had remained unchanged for a century. The federal rate was significantly lower than what many states and private landowners charge for drilling contracts on state or private lands.
The new rule does not go so far as to ban new oil and gas leasing on public lands, as many environmental groups have urged and as Democratic President Joe Biden promised during the 2020 campaign. But officials said the proposal would lead to a more responsible leasing process that delivers better returns for American taxpayers.
The plan codifies provisions in the climate law known as the Inflation Reduction Act, as well as the 2021 infrastructure bill and recommendations from a Department of the Interior report on oil and gas leasing issued in 2021.
“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will reduce wasteful speculation, increase revenues for the public, and protect taxpayers from the costs of environmental cleanup,” said Interior Secretary Deb Haaland.
Along with efforts to clean up so-called orphaned or abandoned wells, “these reforms will help protect the health of our public lands and nearby communities for generations to come,” Haaland said.
Haaland and other officials said the new rule provides a fair return for taxpayers and focuses oil and gas leasing on areas most likely to be developed, especially those with existing infrastructure and high oil and gas potential. The rule will ease pressure to develop areas that contain sensitive natural areas, cultural resources or recreational areas, officials said.
The new royalty rate set by the climate law is expected to remain in place until August 2032, after which it could be increased. The higher rate would increase costs for oil and gas companies by an estimated $1.8 billion over that period, according to the Interior Department.
The rule would also increase the minimum lease bond paid by energy companies to $150,000, up from the previous $10,000 set in 1960. The higher deposit requirement is intended to ensure companies meet their obligations to clean up drilling sites after they are completed or plug wells. that have been abandoned.
The previous level was far too low to force companies to act and did not cover the potential costs of reclaiming a well, officials said. As a result, taxpayers often have to pay cleanup costs for abandoned or depleted wells when an operator refuses to do so or goes bankrupt. Hundreds of thousands of ‘orphaned’ oil and gas wells and abandoned coal and hard rock mines pose serious safety risks, while causing ongoing damage to the environment.
Over the past two years, the Department of the Interior has made more than $1 billion available through the Infrastructure Act to clean up orphaned oil and gas wells on public land. The new rule should prevent this burden from falling on taxpayers in the future.