Biden’s Revival Of Oil Leasing Program Plays To Mixed Reviews

Across his first 15 months in office, President Joe Biden has held good to his word on his campaign promise to end new leasing for oil and natural gas on federal lands and waters. He famously suspended the leasing program run by the Department of the Interior (DOI) on his first day in office, and Interior Secretary Deb Haaland and her lawyers have employed various delaying tactics to keep that program dormant since that time.

In a standard Washington, DC information dump late Good Friday afternoon, Sec. Haaland’s office announced that DOI will revive the leasing program later this year, offering a smallish 144,000 acres of onshore lands for potential leasing. The number of acres to be offered represent a fraction of available federal lands that have been offered by previous administrations, reflecting the Biden DOI’s ongoing efforts to re-prioritize the best uses for public lands under the statutory “multiple use” requirements.

In a statement, Haaland said, “How we manage our public lands and waters says everything about what we value as a nation. For too long, the federal oil and gas leasing programs have prioritized the wants of extractive industries above local communities, the natural environment, the impact on our air and water, the needs of Tribal Nations, and, moreover, other uses of our shared public lands. Today, we begin 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.”

DOI’s new leasing plan will also raise the cost for drilling on federal lands, increasing the standard federal royalty rate from 12.5% to 18.75%. Predictably, industry representatives were not overly pleased with Haaland’s new plan.

Jeff Eshelman, Chief Operating Officer at IPAA, a trade association representing independent producers, said, “This administration has begged for more oil from foreign nations, blames American energy producers for price gouging and sitting on leases. Now, on a late holiday announcement, under pressure, it announces a lease sale with major royalty increases that will add uncertainty to drilling plans for years.”

Just as predictably, representatives from the environmentalist lobby also had nothing good to say about the planned restart. “Not only does it devastate our planet, it’s a handout to Big Oil at the expense of average Americans, who will bear the brunt of its societal, health and financial ramifications,” Dan Ritzman, Lands Water Wildlife director at the Sierra Club, said of the plan. “We urge the Biden administration to take advantage of this historic opportunity to make good on campaign promises, fulfill a global commitment to acting on climate, and serve American communities by phasing out oil and gas production on public lands and oceans.”

Generally, when neither side of a political debate is happy with a policy decision, it’s a good sign the policy decision is fairly well-measured. From the Biden administration’s political calculation, this one certainly hits the mark. After all, it give the public the impression that the embattled President is “doing something” to address the problem of high gasoline prices even though any impact in terms of increased drilling and production of oil and gas will come years down the road.

The move will also, at least nominally, satisfy the ruling from last summer by a federal court that Biden and Haaland lack the authority to suspend the leasing program by executive fiat, ordering them to restart it. So, here they go, unless Haaland can concoct some other rationale for further delay.

While it is reasonable for industry to point out the comparatively low amount of acreage to be offered in the new sales, it should probably avoid making too much noise about the higher royalty rate. There is a strong argument to make that a royalty rate increase on federal leases is in fact long overdue.

While a 12.5% royalty was traditionally accepted across the U.S. industry on all land types for a century, that all began to change in the 1980s as landowners grew increasingly sophisticated in their dealings with oil companies. Royalty rates of 22.5% to 25% have been the most common paradigm on private lands for more than 20 years now, but the feds and many states have continued to collect at lower rates. So, a rate of 18.75% is still a comparative bargain for drillers.

However, as Eshelman states, if the administration truly wants these sales to promote an increase in domestic oil production, the smart thing to do would be to offer as many acres for sale as are available at the lower, 12.5% rate, since the higher rate will inevitably render many potential development projects uneconomic.

But that’s not what this is really all about. This is all about satisfying the federal court’s order, and about appearing to “do something” to target what has become a highly-damaging political issue while really not doing much at all. It is what it is.