BLM opens public comments on proposed oil and gas rule changes

April 21, 2015

BLM, oil and gas drilling

When Interior Secretary Sally Jewell toured the Sidewinder oil rig near Williston, ND, in August 2013, she declared: “This is ground zero for an ‘all-of-the-above’ energy strategy. We can learn from what states do. North Dakota is very sophisticated, where others are not.”  [L to R: Sen. Heidi Heitkamp (D-ND), Interior Secretary Sally Jewell, Sen. John Hoeven (R-ND), and Russ Rankin, Norwegian owned Statoil’s Bakken manager]

When Interior Secretary Sally Jewell toured the Sidewinder oil rig near Williston, ND, in August 2013, she declared: “This is ground zero for an ‘all-of-the-above’ energy strategy. We can learn from what states do. North Dakota is very sophisticated, where others are not.”
[L to R: Sen. Heidi Heitkamp (D-ND), Interior Secretary Sally Jewell, Sen. John Hoeven (R-ND), and Russ Rankin, Norwegian owned Statoil’s Bakken manager]

The Bureau of Land Management (BLM) rules governing oil and gas royalty rates, rental payments, lease sale minimum bids, civil penalty caps, and bonding requirements are sorely outdated. For example today’s bonding requirements were set back in the 1950s during the Eisenhower Administration. Last Friday, the BLM issued a press release in which Secretary of the Interior Sally Jewell announced the opening of a public dialogue about making changes to federal onshore oil & gas regulations.

Starting today and for the next 45 days, the BLM will accept public comments on the potential updates outlined in the Advanced Notice of Proposed Rulemaking (ANPR) titled:  Oil and Gas Leasing; Royalty on Production, Rental Payments, Minimum Acceptable Bids, Bonding Requirements, and Civil Penalty Assessments. In Section III — Description of Information Requested, there is a list of questions about potential rule revisions for which the BLM is specifically seeking feedback.  See “How to submit comments” below.

BLM Press Release —

Interior Department Seeks Public Dialogue on Reform of Federal Onshore Oil and Gas Regulations

WASHINGTON – Secretary of the Interior Sally Jewell announced that the Bureau of Land Management (BLM) will open a public dialogue on potential changes to federal onshore oil and gas regulations as part of President Obama’s strategy to support a balanced, prosperous energy future. The BLM is issuing an Advance Notice of Proposed Rulemaking (ANPR) to seek public comment on potential updates to BLM rules governing oil and gas royalty rates, rental payments, lease sale minimum bids, civil penalty caps and financial assurances.

“It’s time to have a candid conversation about whether the American taxpayer is getting the right return for the development of oil and gas resources on public lands,” said Secretary Jewell, who recently discussed the Administration’s energy reform agenda in remarks at the Center for Strategic and International Studies. “The BLM’s regulations have not kept pace with technological advances and market conditions, so this is an important information-gathering step as we seek to improve the way the federal government does business.”

Modernizing the BLM’s rate structures can provide critical flexibility, Jewell noted, especially given the dramatic growth of oil development on public and tribal lands, where production has increased in each of the past six years, and combined production was up 81 percent in 2014 versus 2008. Potential changes to BLM’s regulations would also respond to concerns expressed by the Government Accountability Office (GAO), Interior’s Office of Inspector General, and others that the BLM’s existing rules lack flexibility and could be causing the United States to forego significant revenue to the detriment of taxpayers.

The GAO has repeatedly concluded that the BLM’s regulations do not provide a reasonable assurance that the public is getting appropriate fair share of the revenue from these resources. The BLM’s current rules lack the flexibility to offer new competitive leases at higher royalty rates.

“As part of this process, the BLM and the Department will conduct a thorough analysis of the cost of doing business on federal lands, and we welcome input from all parties on how taxpayers can be better assured adequate compensation from oil and gas production on public lands,” said Assistant Secretary for Land and Minerals Management Janice Schneider. “We also want to ensure those resources are developed diligently and responsibly and that financial assurances and penalties reflect the true costs of modern day oil and gas development and reclamation.”

Currently, the royalty rate for competitive oil and gas leases on public lands is 12.5 percent of the value of production. Current regulation locks that rate at the minimum allowed by law, even though many states and private landowners assess higher rates to oil and gas developed from their lands. The ANPR seeks comment on potential changes that would provide the BLM with the procedural flexibility to change the royalty rate in response to market conditions consistent with the procedure for offshore oil and gas leases. Tribal lands would not be affected.

The ANPR also seeks comment on the adequacy of bonding requirements and civil penalty assessments. The current minimum bond amounts — $10,000 for a lease-wide bond, $25,000 for a statewide bond, and $150,000 for a nationwide bond — have not been updated in two generations. The current lease-wide amount reflects a small fraction — one-fifth of one percent — of the average cost of drilling a modern well and may not adequately reflect the potential cost to taxpayers should a company fail to comply with lease terms. Similarly, existing rules cap the amount of civil penalties that BLM can assess at levels that may be too low to provide sufficient deterrence for potential violations.

“Our current minimum bonding rates and maximum penalties are ripe for a fresh look,” said BLM Director Neil Kornze. “Today’s bonding rates were set when Dwight D. Eisenhower was president. We are long overdue to consider an update that will help us ensure that oil and gas sites are properly managed and reclaimed and that taxpayers aren’t left picking up the tab.”

The ANPR additionally addresses the value of these resources by inviting comment on how the BLM might update its rules regarding the minimum acceptable bid that must be paid by parties seeking a lease at auction, and the annual rental payments that are due after a lease is obtained. The current minimum acceptable auction bid is $2 per acre, which is well below the rate at which most parcels sell, suggesting that the rate could be higher. After obtaining a lease, a lessee is currently required to make annual rental payments until the lease starts producing oil or gas. These rental rates currently are $1.50 per acre for the first five years and $2.00 for years five through 10. The ANPR invites comment on how rental payments might be better structured to incentivize diligent development of leased areas.

“This process will not only assure broad public input and thorough review and analysis but also help build the public confidence necessary to sustain our energy revolution,” said BLM Director Neil Kornze. “This dialogue can help ensure that American taxpayers receive a fair return from energy resources developed on their public lands, offer companies incentives to promptly explore and develop their leases, and provide real-world assurances and deterrents that address the risks associated with exploration and production.”

The ANPR is another step in the most ambitious reform agenda in the Department’s history to strengthen, update and modernize energy regulations. For oil and gas operations offshore, Interior has made sweeping reforms to provide for safe and responsible development, overhauling federal oversight by restructuring to provide independent regulatory agencies that have clear missions and are better-resourced to carry out their work, while also keeping pace with a rapidly evolving industry.

In the wake of the devastating Deepwater Horizon blowout, explosion and oil spill, Interior strengthened drilling and emergency response standards for oil and gas companies, and raised the bar for operations through a comprehensive rule to clarify and enhance well-control requirements for drilling, workover, completion and decommission operations on the Outer Continental Shelf. Interior also released robust proposed standards for Arctic oil and gas exploration and development, specifically tailored to the region’s challenging conditions.

Onshore, the Department recently announced common-sense initiatives, based on extensive public comment and industry best practices, for regulating hydraulic fracturing.

The ANPR invites the public to submit comments during a 45-day comment period, through June 5, 2015.

High Country News:
Interior considers hike in oil and gas royalty rates
Industry opposes reforms at a time when low oil prices deter drilling

Oil and Gas Leasing; Royalty on Production, Rental Payments, Minimum Acceptable Bids, Bonding Requirements, and Civil Penalty Assessments. I

How to submit comments

Click here to submit comments online.

By mail:
Director (630) Bureau of Land Management
U.S. Department of the Interior
1849 C St. NW., Room 2134LM
Washington, DC 20240
Attention: 1004-AE41

By personal or messenger delivery:
U.S. Department of the Interior
Bureau of Land Management
20 M Street SE, Room 2134LM
Attention: Regulatory Affairs
Washington, DC 20003

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2 Comments on “BLM opens public comments on proposed oil and gas rule changes”

  1. maryinline Says:

    April Fool’s day has already come and gone. This is just one of those regular, every day jokes. When Jewell and the Feds say that, “…opening of a public dialogue about making changes to federal onshore oil & gas regulations…”, they’re really saying, “Keep everyone thinking that what they say about oil and gas development is what we listen to. Then, let’s just keep making up the rules to make it financially profitable for us and the O&G corporations.”

    A community Bill of Rights is the answer for citizens to be the ones making the rules. Learn more at Colorado Community Rights Network and Community Environmental Legal Defense Fund.

  2. Peggy Tibbetts Says:

    These proposed rule changes apply to drilling on public lands. That is the jurisdiction of the BLM, not local communities. I included the quotation from Jewell in the photo caption above because, let’s face it, there will always be drilling and mining on public lands. The public comment process has been used by the BLM for eons. It’s the only way ordinary people have to participate in the decision-making about drilling and mining on public lands. We can’t stop it, but we can at least be compensated fairly for it and not wind up footing the bill for reclamation which is what is currently happening. What is unique to this particular rulemaking process is the inclusion of specific questions to stimulate the conversation and invite feedback.

    I don’t like the fact that Jewell is pro oil & gas development on public lands, but I do appreciate her willingness to open a dialogue about how the public is compensated.

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