Earlier this week, the Department of the Interior released a proposed rule that would codify reforms made by Congress in the Inflation Reduction Act (IRA) and the Infrastructure, Investment and Jobs Act (IIJA), as well as recommendations made by the Department of the Interior’s Report on the Federal Oil and Gas Leasing Program, which was published in November 2021 pursuant to Executive Order 14008, Tackling the Climate Crisis at Home and Abroad.

The proposed rule would codify the fiscal terms of the onshore federal oil and gas leasing program, most recently updated in the IRA— including royalty rates, minimum bids, and a new expression of interest fee. The proposed rule would also raise bonding requirements for the first time in 60 years, and direct oil and gas leasing away from places with sensitive cultural, wildlife and resources or with little oil and gas development potential. These reforms would increase returns to taxpayers, disincentivize speculative leasing and hold the oil and gas industry more accountable.

Here’s a summary of the proposed rule:

The proposed rule would codify the fiscal reforms made by the IRA, including:

• Royalty rate: The proposed rule update royalty rates to reflect the provisions of the IRA. Royalty rates for leases issued for 10 years after the effective date of the IRA are effectively locked at 16.67% pursuant to IRA. After the 10-year window ending on August 16, 2032, the rule would set the minimum royalty rate at 16.67%.
• Minimum bids: The rule would codify a provision of the IRA that increased the national minimum bid from $2 per acre to $10 per acre. And after the 10 years IRA window, the minimum bid will be regularly adjusted for inflation.
• Rental rate: The rule updates the rental rate pursuant to the IRA for leases issued in the 10 years after the enactment of the bill. Rental rates are raised to $3/acre for the first 2 years, $5/acre for years 3-8, and then no less than $15/acre for years 9-10; and the minimum bid is now $10/acre. After August 16, 2032, those rental rates will become minimums and are subject to annual inflation adjustment.
• Expressions of Interest fee: The IRA established a new expressions of interest fee for nominating parcels, set at $5 per acre and will be adjusted for inflation every 4 years.
• Eliminate noncompetitive leasing: Pursuant to the IRA, the proposed rule removes all references to or allowances for noncompetitive leasing from the Code of Federal Regulations. All federal lands may only be leased competitively at an auction for no less than the minimum bonus bid.

In addition of codifying the IRA fiscal reforms, the proposed rule also includes:

• Bonding requirements: The rule proposes to increase the minimum lease bond amount to $150,000 and the minimum statewide bond to $500,000 and eliminate nationwide and unit bonds. The existing lease bond minimums set in the 1950s and 60s no longer provide an adequate incentive for companies to reclaim their wells after production ends, nor does it cover the potential reclamation liability should a company abandon its wells. The outdated bond requirement increases the risk of taxpayers covering the cost of reclaiming wells in the event the operator refuses to do so or declares bankruptcy. The IIJA provided $250 million to clean up orphaned oil and gas wells on federal lands.
• Direct oil and gas leasing to appropriate locations: The rule would help steer oil and gas development away from important and sensitive wildlife habitat or cultural sites, and instead toward lands with existing oil and gas infrastructure or high production potential. This proposal is consistent will the Interior’sReport on the Federal Oil and Gas Leasing Program, the BLM’s recent Instruction Memorandum on evaluating parcels, as well as recent proposal in the Senate to limit leasing of low potential lands.
• Additionally, BLM would also increase its processing fees, like raising the competitive lease application fee from $185 to $3,100. These increased fees would not apply to existing applications and would only apply to applications submitted after the effective date of the final rule. The GAO has found that the BLM has not reviewed its application fees since 2005 despite changing conditions. The BLM concurred with GAO’s findings because the cost to the BLM of its oil and gas leasing process has changed since 2005. Updating related processing fees will help cover the costs to BLM to administer the federal oil and gas program.