Biden hikes oil royalties and cuts lease sales

BILLS, Mon. (AP) — The Interior Department said Friday it is proceeding with the first onshore sales of public oil and natural gas well leases under President Joe Biden, but will sharply increase royalty payments for companies as federal officials scale up efforts to combat the Balancing climate change against the pressure to bring down high gasoline prices.

The royalty rate for new leases will increase from 12.5% ​​to 18.75%. That’s a 50% increase and marks the first increase in royalties for the federal government since they were introduced in the 1920s.

Biden suspended new leases just a week after taking office in January 2021. A federal judge in Louisiana ordered sales to resume, saying interior officials had not offered a “rational explanation” for the cancellation.

The government held an offshore lease auction in the Gulf of Mexico in November, although a court later blocked that sale before the leases were issued.

Friday’s announcement comes amid pressure on Biden to expand U.S. crude production as the pandemic and war in Ukraine disrupt the global economy and fuel prices have skyrocketed. The Democrat is facing calls from his own party to do more to curb emissions from fossil fuels that are driving climate change.

Leases for 225 square miles (580 square kilometers) of state land mostly in the west are put up for sale in a notice to be released Monday, officials said. The lots represent about 30% less land than officials proposed for sale in November and 80% less than the industry originally nominated.

The sales announcements cover leasing decisions in nine states – Wyoming, Colorado, Utah, New Mexico, Montana, Alabama, Nevada, North Dakota and Oklahoma.

Interior Department officials declined to specify which states would have packages for sale or to give a breakdown of the amount of land by state, saying the information would be included in Monday’s sales announcements. They said the reduced space offered reflects a focus on leasing in locations close to existing oil and gas developments, including pipelines.

Hundreds of parcels of public land that companies had nominated for lease had previously been withdrawn from the upcoming lease sale due to concerns about oil rigs harming wildlife.

At the time, officials said burning fuel from the remaining leases could cost billions of dollars in climate change impacts. Fossil fuels extracted from public lands account for about 20% of energy-related greenhouse gas emissions in the US, making them a prime target for climate activists looking to end leasing.

Republicans want more drilling, saying it would increase US energy independence and help lower the cost of crude oil. However, oil companies have been reluctant to expand drilling as they are unsure how long high prices will last.

Friday’s announcement comes after Home Office officials raised the prospect of higher royalties and less land available for drilling in a rent reform report released last year.

“For too long, federal oil and gas leasing programs have prioritized the needs of the extractive industries,” Minister Deb Haaland said. “Today we begin to redefine how and what we believe is the highest and best use of Americans’ resources.”

But the move drew condemnation from both sides of the political spectrum: environmentalists scoffed at the decision to halt long-delayed sales, while oil industry officials said higher royalties would discourage drilling.

Nicole Ghio of environmental group Friends of the Earth said Biden is putting the oil industry’s profits ahead of future generations who must deal with the worsening impacts of climate change.

“If Biden wants to be a climate leader, he needs to stop auctioning off our public lands to Big Oil,” Ghio said in an emailed statement.

American Petroleum Institute vice president Frank Macchiarola said officials had removed some key parcels that companies wanted to drill while adding “new barriers” that would deter companies from investing in drilling on public land.

Lease sales and royalties that companies pay for oil and gas produced have generated more than $83 billion in revenue over the past decade. Half of the money from onshore drilling goes to the state where it was drilled.

Most states and many private landowners require companies to pay royalties in excess of 12.5%, with some states requiring 20% ​​or more, according to federal officials.

The royalty rate for oil produced from federal reserves in deep waters in the Gulf of Mexico is 18.75%. At the November auction, which was later canceled, energy companies including Shell, BP, Chevron and ExxonMobil collectively bid $192 million for offshore drilling rights in the Gulf.

New leases that are being developed could continue producing crude oil long after 2030 if Biden aims to cut greenhouse gas emissions by at least 50% compared to 2005 levels. Scientists say the world needs to be on track to that goal in the next decade to avoid catastrophic climate change.

Economists say a higher license fee would have a relatively small impact on global emissions because any reductions in oil and gas from federal states would be largely offset by fuel from other sources.


Follow Matthew Brown on Twitter: @matthewbrownAP

Leave a Comment