Royalties rise on sales of new oil, gas drilling leases

The Interior Department is moving forward with the first onshore sales of public oil and gas drilling leases under President Biden, but will sharply increase royalty rates for companies as federal officials weigh efforts to fight climate change against pressure to bring down high gas prices.

The royalty rate for new leases will rise to 18.75% from 12.5%, a 50% jump that marks the first increase to royalties for the federal government since the early 1900s.

Biden suspended new leasing just a week after taking office in January 2021. A federal judge in Louisiana ordered the sales to resume, saying Interior officials had offered no “rational explanation” for canceling them.

Friday’s announcement comes as Republicans pressure President Biden to expand U.S. crude production and rein in higher gasoline prices as the pandemic and the war in Ukraine roil the global economy. The Democrat faces calls from within his own party to do more to curb emissions from fossil fuels that are driving climate change.

Leases for 225 square miles of federal lands primarily in the West will be offered for sale in a notice to be posted Monday, officials said. The parcels represent about 30% less land than officials had proposed for sale in November and 80% less than what was originally nominated by the industry.

The sales notices will cover leasing decisions in nine states — Wyoming, Colorado, Utah, New Mexico, Montana, Alabama, Nevada, North Dakota and Oklahoma. Interior Department officials said the reduced area being offered reflects a focus on leasing in locations near existing oil and gas development including pipelines.

Republicans want more drilling, saying it would increase U.S. energy independence and help bring down the cost of crude. But oil companies have been hesitant to expand drilling because of uncertainty over how long high prices will continue.

The announcement comes after Interior officials had raised the prospect of higher royalty rates and less land available for drilling in a leasing reform report issued last year.

“For too long, the federal oil and gas leasing programs have prioritized the wants of extractive industries,” said Secretary Deb Haaland. “Today, we begin to reset how and what we consider to be the highest and best use of Americans’ resources.”

Lease sales and royalties that companies pay on extracted oil and gas brought in more than $83 billion in revenue over the past decade. Half the money from onshore drilling goes to the state where it occurred.