US Interior to restart oil, gas leasing on federal lands with higher royalty rates, emissions analysis

The Biden administration will offer 80% less acreage than originally nominated, charge higher royalty rates, and scrutinize greenhouse gas emissions impacts when it restarts onshore oil and gas leasing on federal lands more than a year after halting the auctions, the US Interior Department said April 15.

The Bureau of Land Management on April 18 will issue final environmental assessments and sales notices for 173 parcels on roughly 144,000 acres.

Royalty rates will rise to 18.75%, from 12.5%, in line with the Interior Department's initial report on leasing reforms released in November and past recommendations by the Government Accountability Office and Interior's Office of Inspector General.

The higher rate will be more in line with states such as Texas, where producers pay as much as 25%. The Interior Department said that when state royalty rates were increased in Colorado and Texas to 20% and 20%-25%, respectively, "there was no significant effect on production from state lands after state royalty rates were raised."

S&P Global Commodity Insights had expected the reforms to raise costs to drillers and shrink available acreage but have a relatively minor production impact.

About 7% of US oil production and 8% of US gas output is produced on federal onshore lands, while federal offshore acreage accounts for about 16% of US oil output and 3% of gas output, the report said.

US supply rising

Surging oil prices since Russia's invasion of Ukraine have caused analysts to raise expectations for US supply growth in 2022, with the Energy Information Administration predicting the supply to increase by 910,000 b/d from 2021 and S&P Global Commodity Insights expecting growth of 1.1 million b/d.

US oil supply was estimated at 11.83 million b/d in April, according to the EIA's latest Short-Term Energy Outlook.

The Interior Department did not say where the reduced acreage was located, only that the BLM reviewed parcels in Alabama, Colorado, Montana, Nevada, New Mexico, North Dakota, Oklahoma, Utah and Wyoming.

733,000 acres previously

The BLM cut the available acreage from 646 parcels on roughly 733,000 acres that drillers previously nominated for leasing "as a result of robust environmental review, engagement with tribes and communities, and prioritizing the American people's broad interests in public lands," the department said in a statement.

The final environmental assessments include an analysis of GHG emissions and climate impacts, a subject being challenged in multiple court cases around the restart to federal offshore leasing.

Interior Secretary Deb Haaland said the restart of onshore leasing was a moment to "reset how and what we consider to be the highest and best use of Americans' resources for the benefit of all current and future generations."