April 19, 2022

Department of Interior Releases New Onshore Oil and Gas Lease Sale Notices

Holland & Knight Alert
Jim Noe | Elizabeth Leoty Craddock | Kayla Gebeck Carroll

The U.S. Department of the Interior (DOI) has announced the first onshore lease sale for drilling on federal lands since President Joe Biden took office, but the new leases will have different terms than all prior lease sales. The April 15, 2022, announcement comes after U.S. District Judge Terry Doughty of the Western District of Louisiana issued an injunction blocking the Biden Administration's pause on new federal oil and gas leasing. Doughty, an appointee of former President Donald Trump, argued that "The omission of any rational explanation in cancelling the lease sales, and in enacting the pause, results in this court ruling that plaintiff states also have a substantial likelihood of success on the merits of this claim." While the injunction is under appeal, DOI said it would take a new approach to its lease sales.

Interior Reforms Onshore 5-Year Plan

On April 18, the Bureau of Land Management (BLM) issued final environmental assessments and sale notices for upcoming oil and gas lease sales. Three primary takeaways from the sale notices include:

  1. BLM Reduced the Acreage Originally Nominated by Industry by 80 Percent. When BLM undertook its original assessment, it surveyed 646 eligible parcels spanning 733,000 acres in seven state offices: Montana/Dakotas, Wyoming, Colorado, Utah, New Mexico, Nevada and Eastern States. Of the lands reviewed, final sale notices will offer approximately 173 parcels on roughly 144,000 acres, an 80 percent reduction from the acreage originally nominated by oil and gas companies.
  2. Interior Increased Onshore Royalties for the First Time Ever. The new royalty rate for new competitive leases is 18.75 percent, up from 12.5 percent. This is the first time that the federal government has raised the royalty rate since the 1920 mining law was enacted. Industry fears that this change will pressure investors to invest in wells on existing leases, rather than drilling new exploratory or development wells on new leases, as a way to ensure a return on capital for their investors. While the royalty rates for federal land will now be on par with many Western states, it remains lower than states such as Texas with a 25 percent royalty rate.
  3. Lease Sales Including Analysis of the Social Costs of Greenhouse Gas (GHG) Emissions. BLM stated that a top priority was to avoid impacts on wildlife habitat, migration corridors and sensitive cultural areas. As part of this analysis, BLM disclosed both the GHG emissions and their social cost when selecting the final 173 parcels chosen.

Offshore 5-Year Plan Set to Expire in June

Although the Biden Administration has taken steps to reform its onshore oil and gas leasing policies, noticeably missing is any action on the offshore five-year plan. The current offshore five-year plan, which is required for lease sales to occur pursuant to the Outer Continental Shelf Lands Act (OCSLA), is set to expire on June 30, 2022. Developed through a rigorous process, it can take DOI two to three years to develop the plan. Without a new five-year plan in place, and understanding the time in which it takes to prepare a new five-year plan, industry remains concerned that the Biden Administration is only further cementing its moratorium on offshore lease sales for years to come.

For more information, please contact Jim Noe or Elizabeth Craddock.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

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