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Half Million Acres on Oil Auction Block as Greens Fear Land Rush

Aug. 24, 2020, 10:01 AM

The Interior Department is set to auction oil and gas drilling rights to an area of federal land roughly twice the size of Los Angeles over the next six weeks, as part of its first oil and gas lease sales since March.

Environmental groups are calling the lease upcoming lease sales a last-minute land rush for the oil industry prior to the November election. But oil industry group say the auctions are necessary to ensure the security of future jobs.

The Bureau of Land Management, part of Interior, will begin a series of nine oil and gas lease sales nationwide starting Aug. 26, auctioning the drilling rights to more than 535,000 acres of federal public land and minerals in 13 states from Nevada to Michigan.

Amid the coronavirus pandemic and economic turmoil in the fossil energy industry, the land bureau canceled all oil and gas lease sales it had previously scheduled for the summer.

“While 2020 has been a challenging time for the industry, the world will continue to demand more energy in the long-run, not less,” said Lem Smith, a vice president of the American Petroleum Institute.

“Every lease sale is also an opportunity to deliver economic boosts to the states where they are held while simultaneously adding to U.S. energy security,” Smith said.

Lease sales scheduled through the end of September will affect land in Michigan, Alabama, Mississippi, Louisiana, Texas, Oklahoma, New Mexico, Colorado, Utah, Wyoming, North Dakota, Montana and Nevada.

Covid-19 Fallout

The planned summer lease sales were to take place in states across the West, including Colorado, where the last federal lease sale was held March 26. The leases in that sale either received no bids or sold for the lowest possible price of $2 per acre.

Of the 20 Colorado parcels included in the auction, nine received bids from energy companies. Once leased, companies have the right to drill for 10 years.

The bureau said in June that it was postponing some summer online lease sales due to pandemic-related safety reasons, not economic ones.

Land bureau officials declined to respond to detailed questions about why the summer lease sales were canceled and how market conditions may have contributed to the upcoming lease sales.

“Lease sales scheduled for June and July have been added to scheduled lease sales in August and September,” Christopher Tollefson, land bureau public affairs chief, said in an email Friday.

Utah, meanwhile, cited economic woes in the energy industry for deferring its oil and gas lease sales for state-owned land until October.

But industry officials deny that economic hardship was a factor in federal lease sale cancellations.

“Because the process on federal lands from leasing through environmental analysis to permitting takes several years, companies plan years in advance, and current market dynamics have little to do with BLM holding a sale or not,” said Kathleen Sgamma, president of the Western Energy Alliance, a trade group representing energy companies operating on federal lands in the West.

Sgamma said disruption to the summer sales occurred because of the pandemic.

‘Further Risk of Harm’

The lease sales follow land bureau decisions to open vast swathes of the Arctic to drilling, and several Montana federal court decisions tossing out previous auctions after finding that the land bureau failed to sufficiently study environmental consequences.

Environmental groups say the upcoming lease sales represent a last-minute pre-election land rush for oil companies, which can continue to buy leases up to two years after the auction ends in a non-competitive bidding process.

Such long-term opportunities for oil and gas companies to obtain drilling rights increases “the risk that valuable sage-grouse and big game habitat and wilderness-quality lands will be leased based on speculation and then put at further risk of harm,” said Nada Culver, senior counsel for the National Audubon Society, an environmental group.

“We saw a similar rush to lease at the end of the Bush administration and that rush resulted in sales that were overturned as illegal, just like so many of this administration’s sales have been already,” Culver said.

In May, the U.S. District Court for the District on Montana invalidated 525 square miles of oil and gas leases issued by the Trump administration because it failed to fully study their impact. The same month, the court tossed out another lease sale for similar reasons.

The court blocked oil and gas lease auctions due to the land bureau’s failure to consider climate impacts and its unwillingness to prioritize mineral leasing outside sage grouse habitats, said Erik Molvar, executive director of the Western Watersheds Project, an environmental group.

“The massive acreage of public land that BLM is auctioning for oil and gas drilling this fall looks like a last-ditch effort to commit as much of our public lands as possible to fossil fuel extraction before the possible change in administration,” Molvar said.

To contact the reporter on this story: Bobby Magill at bmagill@bloombergindustry.com

To contact the editors responsible for this story: Anna Yukhananov at ayukhananov@bloombergindustry.com; Rebecca Baker at rbaker@bloombergindustry.com

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