Today, the Department of the Interior’s Bureau of Land Management announced the upcoming release of a proposed rule to repeal recent reforms to the onshore oil and gas leasing system, including reverting to bonding policies last updated in the 1960s.
Statement by Autumn Hanna, vice president of Taxpayers for Common Sense:
“If finalized, the proposed changes to the oil and gas leasing system would be disastrous for American taxpayers. Strong federal bonding requirements are essential for protecting communities from the health and safety risks of orphan wells and ensuring operators, not taxpayers, pay for cleanup. By proposing to reduce statewide bonding requirements from $500,000 to $25,000, the administration is moving in the wrong direction and increasing the risk that taxpayers will once again be left holding the bag for reclamation costs.
Background
The Department of Interior simultaneously announced plans to amend the methane waste prevention rule, which governs the venting, flaring, and leaking of natural gas on federal land.
The federal government manages the development of publicly owned oil and gas by leasing land to private companies to extract resources and sell them for profit. As part of the leasing process, taxpayers must receive a fair return for use of our public lands and oil and gas resources and operators are required to reclaim wells and surrounding sites. If they abandon wells or fail to restore the landscape, the Bureau of Land Management (BLM) draws on reclamation bonds to cover cleanup. When bonds are insufficient, federal taxpayers pay the difference.
Unreclaimed wells can leak methane, contaminate drinking water, and put communities at risk. Cleanup is costly. The Government Accountability Office estimates reclamation costs can range from $20,000 to $145,000 per well. The BLM has reported an average cost of $71,000 and, in some cases, as high as $200,000.
For decades, minimum bond amounts lagged far behind actual cleanup costs. Until recently, operators could cover an entire lease with $10,000, all of their wells in a state with $25,000, or even nationwide operations with $150,000. When required bonds sit below expected reclamation costs, operators have little incentive to fulfill their obligations and taxpayers end up footing the bill.
All wells eventually stop producing and must be reclaimed. Every under-bonded well today is a potential claim on the public purse tomorrow. At the end of FY2022, this shortfall exposed the public to as much as $6.15 billion in potential reclamation costs.
Fortunately for taxpayers, BLM addressed this in 2024 by updating bonding requirements. The agency now accepts two coverage levels: a minimum $150,000 bond for wells on an individual lease and a minimum $500,000 bond for all wells owned by an operator in a state. BLM may require higher amounts when an operator has a history of violations or when it anticipates higher-than-average reclamation costs.
TCS strongly supported the 2024 bonding rule. The old bonding minimums had never been adjusted for inflation since they were first set in the 1950s and 1960s. The long-standing $10,000 minimum bond for an individual lease was the equivalent of more than $100,000 today. They also failed to reflect the rising cost of well reclamation as technological developments created deeper, more expensive wells to clean up. If finalized, rescinding the 2024 bonding reforms could increase taxpayer exposure to future cleanup costs and harm communities.
The announced rule would also authorize noncompetitive leases after competitive auctions, a practice ended by Congress in 2022 and reinstated in 2025. The noncompetitive leasing process allows oil and gas companies to acquire leases that received no competitive bids for pennies an acre. Nationwide, between FY2003 and FY2009, just 1.2% of noncompetitive leases entered production within ten years. Nonproducing leases block other uses of federal land that could yield far greater value for taxpayers, including recreation, conservation, and the development of other mineral or energy resources.
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Taxpayers for Common Sense is a nonpartisan budget watchdog committed to eliminating wasteful spending and promoting fiscal transparency and accountability.
