Utah, Federal oil and gas leases, and the Biden Administration
Within Utah’s borders, the US owns 35.2 million acres of oil, gas, and other minerals – nearly 2/3rds of the minerals within the State of Utah. These minerals are leased and administered by the Bureau of Land Management (BLM). When the BLM issues a federal oil and gas lease, the lessee must pay (1) its high bonus bid from the online auction, (2) annual rentals until producing oil or gas, then (3) a 12.5 percent royalty on all produced oil and gas. Although the oil and gas are owned by the US, it must share with the State of Utah 50 percent of the bonus bid, annual rentals, and royalties associated with all federal oil and gas leases located within Utah. In 2020, the US paid the State of Utah $67.3 million. In pre-pandemic years, the amount paid to the State varied from $143.9 million in 2015 to $98.3 million in 2019. Accordingly, what happens in Washington, DC, even something as obscure as federal oil and gas leasing, impacts Utah.
One week into the new Biden Administration, the President issued Executive Order No. 14008 (the Order), ordering a “pause” on issuing any new federal oil and gas leases. However, by statute, the BLM, including the Utah State Office, is to conduct quarterly competitive oil and gas lease sales, with 50 percent of the bonus bids from the lease sales going to the State of Utah. In 2019, 255 competitive federal oil and gas leases were issued, covering 457,822 acres, for a total bonus bid of $12,894,272. The State of Utah received over $6.4 million from the sale of those leases. So far, the 2021 first and second-quarter lease sales have been canceled due to the pause in the issuance of new federal oil and gas leases.
The pause is in effect pending completion of a comprehensive review and reconsideration of the federal oil and gas permitting and leasing practices in light of the Secretary of the Department of the Interior’s (DOI) stewardship responsibilities over the federal lands, including potential climate and other impacts associated with oil and gas activities on the federal lands. As part of that review, DOI hosted a virtual Public Forum on the Federal Oil and Gas Program (Forum) on March 25, 2021. Newly confirmed DOI Secretary, Debra Haaland, offered the opening remarks wherein she recognized, “there is no doubt that oil, gas, and coal energy from our public lands and ocean have helped build our economy and power our nation. Fossil fuels will continue to play a major role in America for years to come.” She then pivoted stating, “too often the extraction of resources have been rushed to meet the false urgency of political timetables rather than careful consideration for the impacts of current and future generations.” The Forum did not conclude with any clear insight into the Biden Administration’s plans for federal oil and gas leases.
Although it is difficult to predict, at a minimum, to the extent new oil and gas leases are issued, higher minimum bonus bids, higher annual rentals, and higher royalty rates are to be expected, among other changes. As noted by the academic experts at the Forum, these increases, among other anticipated changes, may reduce investment interest in federal leases relative to state, private, and foreign leasing opportunities. The Biden Administration has targeted “early summer” for the publication of a report outlining DOI’s plans and recommendations to Congress. However, both sides of the aisle are already filing a flurry of bills pertaining to oil and gas leases and permitting on federal lands – from H.R. 1505, Bonding Reform and Taxpayer Protection Act of 2021, sponsored by Rep. Lowenthal (D-CA), to H.R. 1726, America Needs Worthwhile Resources Act, sponsored by Rep. Young (R-AK).
On March 24, 2021, the State of Utah joined 12 other states in filing a lawsuit in a United States District Court in Louisiana against the Biden Administration over the pause on issuing new federal oil and gas leases and the resulting cancellation of the lease sales that were scheduled to be held in 2021 first, and now second, quarters. Days later, the States moved for a preliminary injunction, arguing that the “paused” lease sales cause the states irreparable harm by depriving the states of their statutorily mandated share of the proceeds from those sales.
In the checkerboard western public land states, where federal, private, and state lands are intermixed, any disruption in the federal oil and gas leasing and permitting program reaches beyond a discrete tract of federal lands. With the advent of horizontal drilling stretching across one to two miles, interests in a well will often include a mix of land ownership, including tracts of federal lands. Delays in obtaining or denials of federal leases and federal permits impact every lease and owner within the well. Such delays can result in losses of state, Indian, and private leases and deny the leasehold owners of their right to the oil and gas. New and novel litigation against the United States may be in the making.
Of additional interest to Utah, the Order also commits to the goal of conserving at least 30 percent of all lands and waters by 2030 (the 30×30 goal). Per the United States Geological Survey, the United States is currently protecting around 23 percent of its coastal waters but only about 12 percent of its lands. The National Geographic Society stated an additional 440 million acres will need to be protected to meet the 30×30 goal. On May 6, 2021, DOI, along with other departments and agencies, submitted to the National Climate Task Force their preliminary report on the 30×30 goal, “Conserving and Restoring America the Beautiful” (the Report). The Report mainly contains general principles. But it does answer two important questions. First, the Report explicitly states that the plan emphasizes “conservation” of the lands and waters “rather than the related but different concept of ‘protection’ or ‘preservation’” – “recognizing that many uses of our lands and waters, including working lands, can be consistent with the long-term health and sustainability of natural systems.” Second, efforts across “all lands and waters, not solely on public lands,” count toward achieving the 30×30 goal. Important to Utah and other western public lands states, the Report provides that conservation efforts should be regionally balanced – agencies should support collaborative efforts across the country.
Many important questions remain unanswered in the Report. What is the criteria for the lands and waters to qualify as being conserved? What activities will be allowed? What is the number of additional acres needed to achieve the 30×30 goal? Will the Biden Administration use existing laws, such as the Federal Land Policy and Management Act, National Forest Management Act, and the Antiquities Act, to conserve more public lands, such as creating new or expanding existing monuments, wilderness areas, and national parks? How will the Administration resolve conflicts such as between the development of critical minerals that will be required for the renewable revolution with the need to conserve the lands? These questions highlight the challenges and uncertainty for both the Administration and the oil and gas industry as the implementation of the 30×30 plan moves forward.
To learn more, join Utah Business and Holland & Hart on June 2nd at 11 am for a free webinar on the subject.