WASHINGTON — Oil and gas companies will have to pay more to drill on federal lands and satisfy stronger requirements to clean up old or abandoned wells under a final rule issued by the Biden administration.
The Interior Department’s rule raises royalty rates for oil drilling by more than one-third, to 16.67%, in accordance with the sweeping 2022 climate law approved by Congress. The previous rate of 12.5% paid by oil and gas companies for federal drilling rights had remained unchanged for a century. The federal rate was significantly lower than what many states and private landowners charge for drilling leases on state or private lands.
The new rule does not go so far as to prohibit new oil and gas leasing on federal lands, as many environmental groups have urged and President Joe Biden promised during the 2020 campaign. But officials said the proposal will lead to a more responsible leasing process that provides a better return to U.S. taxpayers and focuses oil and gas drilling in areas most likely to be developed, especially those with existing infrastructure and a high potential for oil and gas reserves.
The rule also will increase the minimum leasing bond paid by energy companies to $150,000, compared with the previous $10,000 established more than 60 years ago. The higher bonding requirement is intended to ensure that energy companies meet their obligations to clean up drilling sites after they are finished drilling or cap wells that are abandoned.
The plan codifies some provisions — including royalty hikes for at least 15 competitive lease sales — that have been enforced on an interim basis since passage of the climate law, known as the Inflation Reduction Act, in August 2022. The rule also incorporates provisions in the 2021 infrastructure law and recommendations from an Interior Department report on oil and gas leasing issued in 2021. That report recommended an overhaul of the oil and gas program to limit areas available for energy development and raise costs for oil and gas companies to drill on public lands and waters.
“These are the most significant reforms to the federal oil and gas leasing program in decades, and they will cut wasteful speculation, increase returns for the public and protect taxpayers from being saddled with the costs of environmental cleanups,” Interior Secretary Deb Haaland said.
Along with efforts to clean up so-called orphaned, or abandoned, wells, “these reforms will help safeguard the health of our public lands and nearby communities for generations to come,” Haaland said. The rule also will ease pressure to develop areas that contain sensitive wildlife habitat, cultural resources or recreation sites, she said.
The new royalty rate codified by the climate law is expected to remain in place until August 2032, after which it can be increased. The higher rate would increase costs for oil and gas companies by an estimated $1.8 billion in that period, according to the Interior Department.
The American Petroleum Institute, the oil industry’s top lobbying group, said it was reviewing the rule to ensure Biden’s Democratic administration was encouraging “fair and consistent access to federal resources” used by oil and gas companies.
