Six steps that turn public lands into private oil and gas leases
Companies, not land managers, "nominate" public lands to be leased for drilling
Nearly 700 million acres of taxpayer-owned oil and gas—mostly lying under public lands—are overseen by the Department of the Interior’s Bureau of Land Management (BLM). The process to lease lands for oil and gas drilling is driven by private oil and gas companies who nominate land for leasing. Millions of acres of U.S. public lands, nominated by oil and gas companies, are leased for drilling every year.
Land managers analyze nominations, with taxpayers footing the bill
After an oil and gas company nominates lands for drilling, the BLM pays for environmental analyses, deciding whether to put the lands up for lease. Between 2009 and 2016 the BLM made nearly 31 million acres of public lands available for oil and gas development at the behest of companies. Less than 8 million of those acres received bids from oil or gas companies, while more than 23 million acres went without bids.
Public land leases are sold through online auctions starting at low rates of $2 per acre
Currently, the minimum bid required to obtain public lands at an oil and gas auction stands at $2.00 per acre. This amount has not been increased in decades. Every year, oil companies buy leases to tens of thousands of acres of U.S. public lands at below market rates.
Companies can sit on leases for 10 years or longer before drilling
Oil and gas companies stockpile leases, but fail to produce on many of them. The BLM allows companies to stockpile leases for 10 years or more, often “suspending”—effectively extending— leases for years or even decades.
Currently, for each leased acre producing oil and gas (about 12.8 million acres), one leased acres sits unused (about 14.4 million acres). What’s more, oil and gas companies are sitting on nearly 8,000 drilling permits, which are approved, have cleared all environmental reviews, and are ready to be drilled, but for whatever reason are not being used.
It costs only $1.50 per acre annually (and $2.00 per acre annually after five years) to leave leased public lands idle, which provides little incentive to generate oil and gas or avoid land speculation. Adjusting the rental rate up to just $3.00 for the first five years of a lease and $5.00 thereafter could generate tens of millions of dollars for taxpayers annually.
Extremely low royalty rates for public land production mean less money for taxpayers
Oil and gas companies are required to pay royalties to taxpayers for oil and gas extracted from public lands. Royalty rates on U.S. public lands are set at 12.5 percent—a rate that was first established nearly a century ago. States across the West charge companies a royalty rate of between 16.67 percent and 25 percent for the right to produce oil and gas on state-owned lands.
The failure to update royalty rates has left the BLM’s oil and gas program on a Government Accountability Office’s High Risk List for fraud, waste, abuse, and mismanagement. A recent GAO report found that small increases to royalty rates would generate millions annually for taxpayers.
Companies can abandon oil and gas wells, leaving taxpayers with the reclamation bill
Abandoned wells can be found throughout the West, posing both health and environmental risks. While companies are required to put up a bond—or insurance—to cover a portion of the reclamation costs, current bonding requirements are inadequate to cover the costs. And because the U.S. government has not updated bonding levels in over 50 years, the problem is only getting worse. According to one analysis, bonding for individual wells can run as low as $50, while reclamation costs can run up to more than $500,000 per well.