Top Interior official sees need to 'flip the script' on public lands use, leasing

A top US Interior Department official Nov. 15 reiterated the agency's desire to reform oil and gas leasing programs, espousing a need to "flip the script" on use of public lands away from one dominated by oil and gas interests.

Interior Department Deputy Secretary Tommy Beaudreau comments backing changes come even as Interior's Bureau of Ocean Energy Management plans Nov. 17 to hold the first lease sale since the Biden administration halted federal oil, gas and coal leasing in January.

Much of the Interior Department and Bureau of Land Management's authorities were "grounded in a bygone era," in which which national priorities centered on getting the resources out of the ground, he said, speaking at an event hosted by the Energy Policy Institute at the University of Chicago.

"It creates a complex issue when your purpose is to reform that system and to unwind 40 years of administrative practice to align the programs with the realities facing the United States and the world, particularly around climate," he said. The effort would strive to put the programs on a path toward "a fair return" for taxpayers "for a shared resource that they own," he added.

Beaudreau several times lauded the work of Ryan Kellogg, deputy dean for the Harris School of Public Policy, who spoke during the same event. Kellogg criticized the 12.5% federal royalty rates for oil and gas drilling as substantially lower than benchmarks elsewhere in the country, creating an emphasis on production.

Beaudreau characterized the administration's approach as an effort to "flip the script on the purpose and use of public lands away from one dominated ... by oil and gas interests, [to] one that instead is oriented as a baseline around the public's interest, including local communities directly impacted by public money and tribes as well."

Lease length

While key parameters of oil and gas leasing terms and royalties are set in statute, Beaudreau pointed to areas where the administration may have latitude to act.

For instance, he suggested the 10-year term for onshore leases was problematic because it locked up lands from being available for other uses, alluding for instance to cultural resources, recreation, hunting and fishing.

With that in mind, one approach that has to be considered, he said, is "making decisions under the Mineral Leasing Act as to what areas are eligible and available for leasing in the first place," he said.

"The [Interior] secretary has a lot of discretion under the [MLA] to make that determination, and so that determination should be informed by the lasting consequences of issuing a lease in the area," he said.

Along those lines, BLM Nov. 15 kicked off a process to consider a 20-year withdrawal of federal lands, barring new federal oil and gas leasing, within Chaco Cultural National Historical Park in northwest New Mexico.

Valuations

As for what the administration can do on royalty rates, Beaudreau noted that the requirements around deductions have a large influence on the amount paid. The administration will be "taking another crack" at a rulemaking addressing that issue completed at the end of the Obama administration that was undone under Trump, he said.

Beaudreau also was asked whether an upcoming administration report on oil and gas leasing would provide recommendations on royalty rates for the National Petroleum Reserve in Alaska, since the rate is not set by statute. In response, he suggested that the administration would look at compensation, along with the full range of its authorities with respect to that part of Alaska.

Beaudreau applauded a paper by Kellogg on BLM leasing and royalties as "truly a roadmap" that he could point to when pressed about the status of the administration's review.

The paper recommended the administration work with Congress to raise the federal onshore royalty rate. It also backed simplifying royalty valuation by eliminating deductions, and increasing the rate of tract development by shortening primary terms for onshore leasing. Further, it backed strengthening bonding requirements to protect the environment and public health.

Budget reconciliation legislation pushed by Democrats in the US House of Representatives included some provisions along those lines. For instance, the bill would increase royalties for new onshore oil, gas and coal leases to 18.75%, from the current 12.5%. But it's unclear whether such provisions will remain intact in the US Senate.