(Bloomberg) – The climate and tax bill passed by the Senate would force oil companies to pay more for drilling on federal lands and prevent them from storing leases at rock bottom prices, changes sought by conservationists and good governance groups for years.
Proponents of the changes argue that the current approach misleads taxpayers, with annual rental fees for some leased land sometimes amounting to less than the cost of a cup of coffee.
“The federal oil and gas program is broken, it’s just giving away our public lands at far from market rates,” said Jenny Rowland-Shea, deputy director of the public lands program at the left-leaning Center for American Progress. . The “tax reforms proposed by the bill will go a long way” to changing that, she added.
The changes have sparked alarm within the oil and gas industry, which has warned that the bill, if passed, would increase costs for key stages of federal land development in the western United States. United. Industry leaders say this would further discourage drilling in these areas, including large swaths of New Mexico’s prolific Permian Basin, exacerbating supply issues at a time when crude and gasoline are high.
Collectively, the bill would “harm American energy producers and drive up energy costs for the American people,” said Anne Bradbury, chief executive of the American Exploration and Production Council.
Simply designating federal lands for potential lease sales would now cost $5 an acre, through a non-refundable fee that would be adjusted for inflation every four years. The minimum auction price would increase from the current $2 to $10 per acre.
Existing land royalty rates of 12.5%, unchanged since codified under President Woodrow Wilson in 1920, would increase to 16.67%.
The bill would also end non-competitive leasing, a practice in which companies are able to anonymously name land for oil and gas development – prompting the auctioning of land – and, later, to buy unsold acreage at advantageous prices without being hit by minimum auction conditions. A 2019 report from the Center for American Progress found that uncompetitive leasing had tied up more than 2.9 million acres of US land over the previous decade.
The bill is more favorable for offshore drillers, after industry leaders helped beat back a host of proposed fees on undersea pipelines, unused wells and production.
As passed by the Senate, the bill would increase royalties collected for offshore oil and gas production from a minimum of 12.5% currently to at least 16.67% and no more than 18.75%.
And, under a compromise brokered by Sen. Joe Manchin, the West Virginia Democrat whose vote was crucial to its passage, the bill would require the Department of the Interior to sell leases in the Gulf of Mexico and Cook Inlet, Alaska, with three sales by September 30. , 2023. The bill would also reinstate a November 2021 auction of Gulf drilling rights that was rejected by a federal judge. And it would make future wind and solar rights on federal land contingent on leasing oil.
This is a radical departure from the current landscape. Home Office officials have been considering the possibility of holding no more overseas lease sales until 2028.
“On the path we were on, the Gulf of Mexico was vulnerable in terms of continued investment viability, and this puts it back on track,” said Erik Milito, president of the National Ocean Industries Association. We “came out of a Democratic climate bill with mandates for leasing offshore oil and gas.”
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