This story was originally published by High Country News and is reproduced here as part of the Climate desk cooperation.
On April 12, the Department of the Interior released a new rule that will impose stricter financial requirements on oil and gas companies operating on federal public lands — the first such change since 1960.
The reform includes a jump in the amount of money that drilling companies must come up with to clean up their wells. It also increases the royalty tax rate that operators pay on the minerals they mine on public land, which has not changed in more than a century.
In a statement, Interior Secretary Deb Haaland said the changes would “reduce wasteful speculation, increase returns for the public and protect taxpayers from the costs of environmental cleanups.”
The final version of the rule, released in draft form last summer, joins a flurry of climate and conservation moves by the Biden administration in recent weeks, including a strengthened methane emission standards for oil wells on federal land and a renewable energy policy intended to promote wind and solar power development. Environmental groups praised the rule as long overdue.
“These new regulations are the kind of common-sense reforms the federal oil and gas leasing program has needed for decades,” Sierra Club Lands Protection Program Director Athan Manuel said in a statement.
The increase in bonding requirements means the government will have significantly more money set aside to pay for the cleanup of abandoned oil and gas wells. To drill, energy companies put up funds, mostly in the form of bonds bought from a third-party guarantor company, to ensure that cleanup takes place.
These bonds are held until the company plugs its wells. If the company does the recycling itself, it gets its bonds back. If a company goes bankrupt or otherwise abandons its wells, the government can use the money in the bonds to pay for plugging and environmental cleanup.
Bond levels need to be high enough to prompt clearance over abandonment, and the Home Department’s bonds have not changed in more than six decades. A 2019 report of the Government Accountability Office found that between 84 percent and 99 percent of bonds for public ground wells do not cover the full cost of cleanup. The new rule increases the minimum bond for a single public petroleum and gas lease — which often contains multiple wells — from $10,000 to $150,000. For companies operating multiple leases in the same state, the bond increases from $25,000 to $500,000.
Despite these increases, the new bond levels are unlikely to cover the full cost of cleaning up the more than 90,000 plugged wells overseen by the Bureau of Land Management. Same 2019 GAO report found a wide range of plugging costs for orphan wells on public lands, ranging from $20,000 to as much as $145,000 per well, with a median cost of $71,000 to plug the well and clean up the drill site.
Insufficient bonding often results in wells being left empty – not producing, but also disconnected. Studies show that emptying wells are more likely to be abandoned, with the financial burden for cleanup falling on public regulators — and ultimately on taxpayers. The Department of the Interior estimates that there are 3.5 million abandoned oil and gas wells in the US, which are significant sources of methane, a potent greenhouse gas.
The new rule requires active operators on public land to meet the new financial standards over the next three years and requires an update every 10 years to keep up with inflation.
The new rule also increases the royalty tax rate that companies pay on profits from minerals mined on public land, which will mean a windfall for Western states such as Alaska, California, Colorado, New Mexico and Wyoming. The previous royalty rate of 12.5 percent was established in 1920. The new rate of 16.67 percent was imposed in 2022 by the Inflation Reduction Act, which also raised the minimum bid for an oil and gas lease to $10/acre, up from $2/acre .
About half of this new revenue will go to the states where the drilling takes place, to fund public services. In oil and gas producing states it is already a major source of income. In some years, New Mexico has taken in more than a billion dollars annually from BLM oil and gas operations, thanks to lease sales in the Permian Basin. Yet Taxpayers for Common Sense, a nonpartisan fiscal think tank, estimates that the government lost more than $12 billion in revenue between 2010-2019 because royalty rates were too low.
The oil and gas industry was not happy with the final version of the rule. In a statement, Kathleen Sgamma, president of the Western Energy Alliance, an oil and gas trade group, said the changes would drive small operators off public land and suggested the group could sue.
“This is another rule by the Biden administration intended to fulfill the president’s promise of no federal oil and natural gas,” she said in a statement, referring to a pledge by President Biden during the 2020 presidential campaign to ban drilling on public land. “Western Energy Alliance has no choice but to litigate this rule.”
While most environmental advocates praised the rule, some criticized the administration for failing to follow through on the same campaign promise — arguing that better financial returns from oil and gas drilling are not the same as banning the practice.
“Reading this rule is like finding an old floppy disk,” Gladys Delgadillo, a climate campaigner at the Center for Biological Diversity, said in a statement. “This does not belong in 2024. Updating oil and gas rules for federal lands without setting a timeline for phase-out is climate denial, pure and simple.”
