More Mixed Signals From Administration in Lease Sale Announcement, Royalty Hike

Frank Macchiarola
Posted April 20, 2022

The U.S. Interior Department’s announcement last week that it will conduct a round of onshore lease sales looks like progress, but the American people and our nation’s energy security need more than just the appearance of progress.

The U.S. Bureau of Land Management (BLM) announced approximately 173 parcels on about 144,000 acres will be offered for lease this summer. Certainly, the Biden administration holding its first round of onshore lease sales is a good thing. Unfortunately, when you take a closer look, it is another example of this administration’s frustrating, one step forward/two steps backward strategy on U.S. oil and natural gas.

It’s another confusing gesture at a time the U.S. needs clarity. Consider:

• The acreage to be offered is about 80% less than the original acreage nominated by industry. It is even 30% less acres than BLM itself proposed less than six months ago, in November.
• Interior also announced it would raise minimum onshore royalty rates to 18.75% from 12.5% – a 50% increase, which may discourage investment, particularly when combined with other recent regulatory actions and uncertainties.
• While there will be onshore lease sales, it has taken the Biden administration 14 months in office to get to this point.

That last point sticks out when you look at where the Obama and Trump administrations were with onshore leasing 14 months into their first terms:

(Source notes: 1: Includes sales 14 months into each presidential term; 2: Obama data here and here, Trump data here; 3: BOEM; 4: Seven Bureau of Land Management Offices; 5: March 2009, August 2009 and March 2020; 6: Seven BLM offices; 7: March 2017, June 2017, March 2018; 8: Lease vacated by federal court, no leases issued.)

The instant analysis is that the Biden administration is far behind where it should be more than a year after Inauguration Day. Factor in the disincentive to federal onshore production posed by the significant increase in royalty rates, and you see why we would argue the administration is again sending out mixed messages on U.S. oil and gas – progress on one hand, new hurdles on the other. It is a bad combination for America’s future energy security.

We are glad to see lease sales forthcoming from the administration, as required by law. But adding new barriers to increasing American oil and natural gas production diminishes the impact U.S. energy resources could have at a time they are most needed.

The administration’s latest actions overlay more than a year of mixed signals, including negative rhetoric chilling potential energy investment, which only makes the president’s stated goal of increased American oil and gas production more complicated.

“Over half of the oil production acreage in New Mexico, the second highest producing state, is on federal lands,” Doug Ackerman, president and CEO of the New Mexico Oil & Gas Association, said to E&E News. “Continuing to handcuff the industry here will do little to increase production, which is the only solution to the current energy crisis.”

Dan Naatz of the Independent Petroleum Association of America echoes Ackerman’s comments: “When you’re reducing the acreage by 80% [and] you’re increasing royalties by 50%, that doesn’t seem to be a formula for robust action on federal lands. Our members are certainly very skeptical. But it doesn’t seem to be a plan that’s going to have a major impact on onshore federal land production.”

The administration can and should do better. It needs to take substantive actions that will advance long-term support for an industry whose production timelines are years and decades ahead. The path to increased domestic oil and gas production that can help protect American families and businesses from future energy impacts like the ones they’re experiencing now is for the federal government to encourage private investment and support long-term planning. A few examples:

• Build a new, robust federal offshore leasing program to replace the program that is scheduled to expire this summer. A substantive offshore leasing program sends the strong signal that long-term offshore production is wanted and is supported by government.
• Commit to holding regular quarterly onshore lease sales with sufficient acreage and equitable terms to promote certainty for investors.
• Approve applications for liquefied natural gas export projects pending with the Department of Energy.
• Support new energy infrastructure projects, including pipelines, that are critical for America to capitalize on its oil and natural gas abundance.

On infrastructure, the administration is erecting new hurdles for needed projects in its recently revised National Environmental Policy Act (NEPA) Phase 1 regulations. These will slow the permitting process for infrastructure while creating new impediments to much-needed oil and gas development. The NEPA proposals also will impact carbon capture, utilization and storage as well as hydrogen infrastructure – both of which are key to building a lower-carbon future.

It is another example of how the administration’s policy actions do not match its recent calls for more U.S. oil and natural gas production. Again, the administration should do better. America needs it to do better.