On May 25^th the Bureau of Land Management (BLM), under the Department of the Interior (DOI), held the first quarterly auctions for oil and gas leases on federal lands of 2023. The sale offered more than 10,000 acres of federal land for oil and gas development in Kansas and New Mexico: 26 parcels containing 6,844 acres in Kansas and 19 parcels containing 3,279 acres in New Mexico.

In total, the Bureau of Land Management sold leases to 37 parcels covering 8,596 acres, 85% of the total acres offered at the auction. The lease sales generated $78.8 million in total revenue, which is shared between federal and state taxpayers in New Mexico and Kansas.

Kansas

In Kansas, 26 parcels covering 6,844 acres of federal lands were offered for oil and gas leasing. 18 parcels covering 5,317 acres, or 78% of total acres offered, were bid on. Kansas leases had an average winning bid of $13/acre. Half of all parcels sold – covering 84% of the acreage sold – was purchased at the minimum bid of $10/acre.

New Mexico

In New Mexico, the sale was quite a bit more competitive. Of the 19 parcels covering 3,279 acres of federal lands offered for oil and gas leasing, all parcels and acres were sold. New Mexico leases had an average winning bid of $24,010/acre, the highest average bid ever received in a lease sale in New Mexico since 2009.

This was the first sale to include onshore oil and gas leasing reforms passed in the Inflation Reduction Act (IRA), including:

• A federal onshore royalty rate of 16.67% (raised from 12.5%)
• Rental rates of $3/acre for the first 2 years, $5/acre for years 3-8, and no less than $15/acre for years 9-10 (raised from $1.50/acre for years 1-5 and $2/acre for years 5-9)
• Minimum bid of $10/acre (raised from $2/acre)

These reforms are an important step in bringing onshore federal oil and gas leasing into the 21^st century. However, there is still more to be done to ensure taxpayers receive a fair return for our valuable public resources. While the 16.67% royalty rate is an improvement from the century old rate of 12.5%, it is still lower than what DOI charges in federal waters (18.75%) and what many states charge. Given how competitive the New Mexico auction was, taxpayers would have gotten more when these leases eventually go into production had the rate been raised to 18.75%. DOI previously included a 18.75% royalty rate in their June 2022 onshore lease sales, with results preliminarily suggesting that a higher royalty rate will not lead to reduced bid revenue.

DOI must also take prompt actions to modernize oil and gas bonding requirements, otherwise taxpayers will be saddled with more cleanup liabilities in the future. Oil and gas producers operating on federal land are required to plug their wells and clean up the surrounding sites after production ends. But required bond amounts – payment that is supposed to cover cleanup costs if an operator abandons its wells or goes bankrupt – haven’t not changed in 60 years and don’t cover the full cost of reclamation.

With almost half a million acres of federal land scheduled to be auctioned for oil and gas development this year, the federal government must take action now to ensure taxpayers a fair return on our valuable resources and protect taxpayers from future liabilities.