Oil, gas groups take to court fight over BLM's rule raising production costs on US federal lands

A coalition of oil and gas groups representing the industry's interests in western US states are taking the Interior Department to court over a rule that raises the costs of producing oil and natural gas on federal lands.

At issue is the Fluid Mineral Leases and Leasing Process rule released in April by the Bureau of Land Management that codifies aspects of the Inflation Reduction Act calling for changes to how fossil fuel production on nearly 700 million acres of federal lands is overseen. But conservation groups supportive of the rule were confident May 17 that the lawsuit would not succeed.

The rule raised the royalty rates companies must pay to produce on federal lands to 16.67%, from the 12.5% that had been in place since the 1920s. Auction bid minimums were increased for the first time since 1988, to $10/acre, up from $2. Bonding requirements, the money companies must front to pay for cleanup of old projects, were reworked from the $10,000 lease bond amount set in 1960. The new minimum lease bonds are $150,000, with the minimum statewide bond rising to $500,000.

The rule also includes provisions designed to concentrate leasing in areas that are most likely to be developed or feature existing infrastructure, and away from areas with sensitive wildlife, recreational uses, or other conservation designations.

The BLM has touted the rule as a balanced approach to lands management that ensures a fair return for American taxpayers and cuts down on speculation.

But independent oil and gas producers said in a petition filed May 15 with the US District Court for the District of Wyoming that the rule "represents a sea change to BLM's oil and gas leasing program" that will "deter development of federal oil and gas, disproportionately affect small companies, effectively close eligible and available lands to new leasing, and violate BLM's duty to promote oil and gas development as a multiple use of federal lands."

The groups behind the lawsuit – the Western Energy Alliance, Independent Petroleum Association of New Mexico, New Mexico Oil and Gas Association, North Dakota Petroleum Council, Petroleum Association of Wyoming, and Utah Petroleum Association – have asked the court to invalidate and vacate the rule for being procedurally deficient, arbitrary and capricious, and contrary to law.

Opinions differ on lawsuit's prospects

"BLM issued a final rule that prices small producers out of the market and off public lands," Kathleen Sgamma, president of Western Energy Alliance, said in a statement May 16. "The bonding amounts are excessive when there are just 37 orphan wells out of more than 90,000 wells on federal lands. Increasing bonding amounts 20-fold in order to take care of a problem on just .04% of wells is way out of proportion."

She added: "Companies are already responsible for reclaiming wells, and one of the primary reasons there are so few orphan wells on federal lands is because our members clean up old wells even when they weren't the party that abandoned them in the first place."

Rikki Hrenko-Browning, president of the Utah Petroleum Association, called the rule "punitive, unnecessary, and overreaching," and said she was "confident the courts will agree with us and rightfully strike it down."

The BLM declined to comment on the pending litigation, but conservation groups chimed in that the lawsuit was "laughable," with little legal footing to stand on.

Aaron Weiss, deputy director of the Center for Western Priorities, noted that the petition never mentions the Inflation Reduction Act, even though "the vast majority of what the industry is whining about here, including minimum bids, rental rates, and the fee for nominating parcels for leasing, is required by the new law."

"BLM has zero discretion in that," Weiss told The Energy Daily May 17. "What's left are bonding rates ... That's something that hadn't been adjusted in 50 years, and the Government Accountability Office recommended that BLM fix. The oil industry made billions of dollars in profits last year. Cleaning up after themselves is literally the least they can do."

Western Environmental Law Center Executive Director Erik Schlenker-Goodrich said the petition essentially took on a "the-sky-is-falling" approach, with "weak" legal claims, "more akin to political rhetoric than well-reasoned law and fact."

"The fact of the matter is, the vast majority of public lands remain open to mineral extraction, and these companies are already sitting on thousands of acres of unused leases," Sierra Club's Director of Conservation Programs Dan Ritzman said in an email. "If they want to argue taxpayers shouldn't get a fair return for the use of public lands, they're welcome to try."

Statutory duty

However, the oil and gas groups claim in the petition that the BLM failed to adequately respond to public comments, especially those from the regulated industry; fell significantly short in its economic analysis; and erroneously opted not to perform reviews required by the National Environmental Policy Act.

"BLM has not taken a hard look (or any look) at the environmental impact of shifting production from federal lands to non-federal domestic and foreign sources, where environmental standards may be less stringent and production less sustainable," they said in defense of their NEPA argument.

Further, there was no examination of "environmental justice impacts of shifting production from often rural and remote federal public lands to population-adjacent locations where privately owned minerals predominate," nor was there any consideration of the loss of revenues from federal leases that fund conservation efforts, they argued.

They also allege that the BLM is violating its statutory duty to ensure development of domestic mineral resources and to account for the public's long-term need for fossil fuel resources.