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‘Walking the Tightrope’ Interior Oil Leasing Plans Irk All Sides

Dec. 2, 2022, 10:31 AM

The Biden administration’s new onshore oil and gas leasing strategy is expected to concentrate new drilling in existing oil fields even as it gives companies reasons to flee federal land—a situation that dismays both environmentalists and industry.

The policies, known as instruction memorandums to agency staff, were issued last week by the Interior Department’s Bureau of Land Management partly as a response to the Inflation Reduction Act climate and tax law, which makes renewable energy permitting contingent on further oil and gas leasing.

The land bureau on Nov. 28 also proposed a new rule aiming to slash methane emissions from oil and gas operations on federal land in part by making companies pay royalties on excess natural gas that is currently burned off in a process called “flaring.”

The bureau’s seven instruction memorandums provide staff guidance on how to comply with the climate law, handle land nominated to be included in an oil and gas lease sale, how to evaluate land available for future leasing, how to handle drillers’ requests to suspend operations on federal land, and how to consider reinstating terminated leases and extensions of approved drilling permit applications.

‘Nobody Will Be Happy’

But Interior’s leasing strategy is angering both the industry, which wants unfettered access to federal lands, and environmentalists, who say the administration can do more to restrict oil drilling because of climate change even as the climate law requires leasing to continue.

The memos are designed to align the bureau’s leasing policies with the mandates of the new law, said Sam Kalen, a natural resources law professor at the University of Wyoming.

The war in Ukraine and the geopolitics of natural gas are forcing the Biden administration to implement policies on fossil fuels that it otherwise wouldn’t have because of climate concerns, Kalen said.

“Nobody will be happy in that scenario, and so walking the tightrope is a necessity until the worldwide circumstances change,” he said.

More Hurdles

The new policies add up to “higher and higher” administrative hurdles for companies operating on federal land, pushing them off federal land and onto state, tribal and private land to explore for more oil and gas, said Angela Franklin, a partner at Holland & Hart LLP in Salt Lake City.

Yet the policies ignore dire climate science showing that further oil and gas production will spell catastrophe, said Kyle Tisdel, a senior attorney at the Western Environmental Law Center in New Mexico.

“The overall issue is whether all of this is consistent with what climate science is telling us, and I’m not convinced that it is,” Tisdel said. Concentrating new drilling in the most productive existing oil fields stands to boost oil production when the pace of climate change demands that it be stopped, he said.

The moves mean that the land bureau will more intensely scrutinize oil and gas companies operating on federal land, and many requests that were once routine, such as applying for an extension to a two-year drilling permit, will no longer be so, Franklin said.

Major new oil and gas discoveries on federal land “won’t be happening,” she said.

The moves come as no surprise to the oil and gas industry, which took President Joe Biden seriously when he pledged to slash oil and gas leasing on federal lands, said Kathleen Sgamma, president of the Western Energy Alliance, which represents companies operating on federal land.

“The one good provision of the IRA is the holding of wind and solar permits hostage to oil and natural gas leasing, which has compelled the Interior Department to move forward” with lease sales, said Sgamma, whose group is joining Wyoming in suing the agency for failing to hold lease sales in 2021.

The Interior Department declined to comment.

What’s In the Policies

Under the new policies implementing the climate law, the land bureau will publish the contact information of anyone who nominates land to be included in a lease sale and collect a $5 per-acre fee for the nomination. Leasing nominations were previously anonymous and free.

The policies outline scenarios in which a company’s request to suspend a lease may be denied. They concentrate future leasing on land that has high development potential and is close to existing drilling sites.

Another memo outlines reasons for staff to deny approval of an extension to a typical two-year oil and gas drilling permit, limiting each permit to a single extension and establishing a three-month window for granting an extension.

Another policy establishes a special team that will review lands targeted for leasing to determine whether enough environmental impact analysis has been conducted.

Exposing Communities to Pollution

The policies effectively prioritize environmental conservation in places where oil and gas production is less likely while concentrating drilling in places where there’s already a lot of it, Tisdel said.

That strategy raises environmental justice concerns because it exposes communities on the edge of existing oil fields to even more pollution instead of spreading drilling’s impact across a landscape, Tisdel said.

The Biden administration is failing to do all it can to eliminate environmental harms from oil and gas leasing required by the climate law, he said.

The Interior Department could place additional stipulations on leases and restrictions on drilling permits that would cut pollution near communities and mitigate harms to the climate, he said.

The Biden administration had pledged to halt federal leasing because of its contribution to climate change, but the White House has restarted leasing following the law’s August passage and lawsuits challenging the administration’s leasing pause.

The bureau is also seeking public comment on land nominated for oil leasing in its first set of 2023 oil and gas lease sales required under the new climate law.

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

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com