While federal agencies mount a “whole of government” response to the current crisis, it’s important for policymakers to adjust the implementation of policies large and small to match the current situation in line with core principles and statutory authorities.
In light of the recent drop in global oil prices, enduring economic uncertainty, and structural problems within the federal oil and gas program, Taxpayers for Common Sense is calling on the Department of the Interior to halt upcoming onshore and offshore oil and gas lease sales. Holding such sales in the current economic environment will exacerbate the effect of outdated leasing policies that reduce revenue to taxpayers at a time when more oil and gas in the global market is unneeded and unhelpful. To ensure federal land and resources are managed smartly and strategically, the Department of the Interior should take this opportunity to rectify fiscal weaknesses that have plagued federal oil and gas leasing for years.
Among the many factors that affect bidding rates for federal leases at auction, current and expected market prices for oil and gas are perhaps the most salient. Over the last couple weeks, actions taken by state actors, a drop in anticipated oil demand, and a persistent glut of oil supply have caused the global price of oil to fall precipitously. Consequently, bidding at lease sales in forthcoming weeks would likely be depressed if the Secretary of the Interior does not take definitive steps to mitigate losses to taxpayers by postponing or canceling planned auctions. Moreover, the cancellation of lease sales might buttress energy markets by signaling the federal government’s intent not to exacerbate the current over-supply of oil.
By statute, the Department of the Interior has the authority not only to suspend a lease sale, but also to update the terms under which federal lands and waters are leased for oil and gas development. The minimum bid the Bureau of Land Management (BLM) can accept for a parcel at auction, as well as the annual rental and royalty rates set by a lease are all subject to change by agency rulemaking. The minimum bid and rental rates have not been updated since 1987 and the royalty rate on the sales value of extracted oil and gas has remained at 12.5 percent since 1920. The continued implementation of these terms has cost taxpayers billions of dollars in lost revenue.
This month, the BLM is scheduled to hold five oil and gas lease sales offering a total of 200 parcels comprised of 228,733 acres of federal land in six states: Colorado, Mississippi, Ohio, Nevada, Wyoming, and Montana. The BLM plans to hold an additional four sales in the next few months with a New Mexico sale scheduled for May and three sales in Utah, Nevada and Wyoming scheduled for June. These four lease sales are still in the planning stages.
A first quarter lease sale in Colorado that took place in March last year brought in just $13 per acre with bid revenue totaling under $14,00 for the 1,055 acres leased. The year before that, taxpayers received an average of just $5 per acre in exchange for 1,400 acres of federal land in the state. Last year’s first quarter Montana lease sale saw just 62,000 acres or 37 percent of 167,000 acres on offer receive bids. Bids per acre in Mississippi in 2018 averaged $2.01, a hair above the legal minimum of $2. That number jumped to a whopping $8.79 per in 2019. Due to market volatility we can expect the upcoming lease sale results to be even worse.
Placing a hold on these lease sales would be not only prudent but fiscally responsible. BLM leasing and royalty policies have deprived federal taxpayers of billions of dollars in bid, rental, and royalty revenues. Proceeding with planned oil and gas lease sales given the tumultuous market conditions will all but ensure even further reductions in taxpayer revenues. The BLM can and must exercise it statutory authority to postpone the upcoming lease sales and protect taxpayer interests.