Modernized Oil & Gas Leasing Protects Taxpayers

The federal onshore oil and gas leasing program should be competitive, transparent, and generate a fair return on publicly owned natural resources without creating long term liabilities for taxpayers.
Century-old policies are padding the bottom line of the profitable oil and gas industry, costing taxpayers billions in lost revenue, and leaving us to cover the cleanup.

For decades, taxpayers lost BILLIONS of dollars in potential revenue and were forced to shoulder costly cleanup liabilities due to outdated and below-market leasing terms. In 2022, Congress took an important step forward by modernizing the onshore oil and gas leasing system. Now, Congress has reversed these common sense updates and put others at risk.

Time to protect taxpayers’ wallets by more accurately valuing our shared public resources and holding oil and gas companies accountable for paying to clean up after profiting from drilling. It’s just common sense.

Market-Rate Royalties

Applying a fair, market-based royalty rate is essential to properly valuing America’s vast oil and gas resources and ensuring taxpayers receive a fair return from their development. The current onshore royalty rate fails this; for every dollar of revenue a producer makes on a barrel of oil on federal lands, taxpayers received just 12.5¢.

History has shown that increasing the royalty rate doesn’t impact industry interest or production ­– but it does protect taxpayer interests. The current federal royalty rate lags far behind what states charged. Texas levies a royalty of 20–25%, New Mexico 18.75–25%, and states like Colorado, Montana, North Dakota, Oklahoma, Pennsylvania, Utah, and Wyoming set rates between 16.7% and 20%.

In August 2022, Congress updated these rates for the first time in over a century, raising the onshore royalty rate to 16.67% for the next 10 years. Over the last decade, 2015-2024, taxpayers would have received an additional $15 billion had the more competitive, fair rate of 16.67% been applied to all production.

However, in 2025 Congress voted to turn back the clock on this long overdue update and re-institute the outdated 12.5% rate for new leases. This move will cost taxpayers billions in potential revenue and lock us into bad deals for decades to come.

Closing the Noncompetitive Leasing Loophole

Noncompetitive leasing allows vast swaths of federal land to be tied up in nonproducing leases that deliver little to no return for taxpayers. According to the Government Accountability Office, noncompetitive leases return just one-fifth of the revenues per acre leased that competitive leases do. Speculators acquire these leases not to produce oil or gas but to profit—whether by flipping leasing rights or inflating acreage figures to attract investors.

Additionally, nonproducing leases block other uses of federal land that could have far greater value for taxpayers, including recreation, conservation, and the development of other mineral or energy resources.

This loophole was finally closed by Congress in August 2022, preventing oil and gas companies and speculators from acquiring noncompetitive leases on federal land without actually developing oil and gas resources.

Unfortunately, Congress reversed course and re-instituted noncompetitive leasing in 2025, once again allowing companies to avoid competitive auction and acquire federal lands for a minor fee.

More Adequate Oil & Gas Bonding Rates

Oil and natural gas producers operating on federal land are required to plug their wells and clean up the surrounding sites after production ends. To ensure the cleanup of these potentially hazardous and environmentally harmful sites is funded, producers are required to post a bond before they start drilling. If a company abandons its wells on a federal lease, or goes bankrupt, the bond is supposed to cover the reclamation expenses. However, for leases on federal land, the required bond amounts had not changed in 60 years and failed to cover the full cost of cleanup.

According to the Department of the Interior, it costs roughly $71,000 to plug and clean up an orphaned well, yet the Government Accountability Office reported that the agency held an average value of $2,122 per well in bonds in 2019 – leaving taxpayers to cover millions of dollars for abandoned wells scattered across federal lands.

Modernized rules from the Bureau of Land Management address this issue by increasing per lease and statewide bond minimums while also eliminating nationwide bonds and unit bonds. This rule better protects taxpayers from having to shoulder the oil and gas industry’s liabilities, keeping communities safe and saving taxpayers billions of dollars.

Up-To-Date Rental Rates

For too long, the federal government failed to keep rental rates up to date for leases on federal land, charging just $1.50 or $2 per acre for oil and gas developers who were not yet producing. Because of inflation, taxpayers received less than half of what we should have, losing roughly $292 million over the last decade.

In 2022, Congress updated these terms and started charging a fair price for holding valuable federal land for the next 10 years. The most recent rule not only secures these higher rates, but also guarantees they are regularly updated for inflation after the law’s 10-year period ends.

Up-To-Date Minimum Bids

Until 2022, the minimum amount companies could bid at auctions for federal oil and gas leases hadn’t been updated for nearly 35 years. Bidders had to pay a mere $2 per acre to purchase leases on federal land. Of the 544,000 acres sold at auction in 2020, roughly 37% of all acres sold received the minimum bid.

Like royalties and rent, this minimum required bid was updated in August 2022. The new $10 per acre rate helps taxpayers get a fair return for valuable federal land and the resources contained in it. The most recent rule codifies this rate after the law’s 10-year window and regularly adjusts it for inflation.

FEDERAL LEASING IMPACTS ON STATE TAXPAYERS

Most federal land and oil and gas production on federal land is concentrated in the West. States where federal land is leased get roughly half of all revenue from the leasing process and production, such as auction bids, rent, and royalties. This means that state taxpayers were also losing big under the old system and will benefit equally from recent reforms that will bring in more revenue.

Find out about federal leasing and its impact on your state: