Changes to Federal Oil and Gas Rules Coming to Montana in 2023, Raising Royalty and Reducing Uncompetitive Sales – Billings Gazette

The Bureau of Land Management recently released guidelines on how leases will be handled under the new laws created by the Inflation Reduction Act. A key issue for Montana will be the end of non-competitive leases, the kind that sell for ridiculous prices and often produce no production. BLM is also increasing royalty rates to 16.67%, identical to Montana’s rate. The previous federal royalty rate was 12.5%.

The new law also requires renewable energy leases to be part of the quarterly sales plan.

For years, conservation groups have called for an end to non-competitive leases, which come after a plot slated for rental receives no offers. After there are no more takers, the plots are then leased out for less than $1.50 per acre per year. Companies that hold paper on land leverage the transaction to attract investors.

“They’ve really been an asset on paper that companies can use to bolster their asset portfolio. They’ve got these low-risk, low-remuneration leases that they’ve been able to get for pennies on the dollar and pay pennies on the dollar in annual rent,” said Audrey Bertram, an attorney representing Wild Montana and several other groups who have argued for ending non-competitive leases.

In some cases, those leased acres could have been used for recreation and tourism, which contribute greatly to Montana’s economy, said Alec Underwood, senior director of policy and development for the Montana Wildlife Federation.

“It’s an outdated system. A lot of those policies that organizations like ours are advocating for change is to modernize the system, especially given the impact that outdoor recreation has on these small communities,” Underwood said. “Big game hunting, when you look at economic statistics, does a lot more for these communities than oil and gas leases that are not competitive. This is our main objective.

Montana has had several high-profile non-competitive leases. A London-based oil and gas company’s non-competitive leases for helium exploration near Miles City had become a running joke before becoming the leading example in a New York Times article on the subject. A Montana Board of Oil and Gas employee told Montana Lee Newspapers in 2021 that the joke was that helium was an imaginary gas since all it ever produced was speculative talk and interest.

Montana is not a major oil producing state. It ranked 11th nationally for crude oil production in 2021 with an estimated 18.9 million barrels that year, according to the US Energy Information Administration. The country’s largest producer, Texas, produced 1.7 billion barrels in 2021, North Dakota 405.1 million. Low production means federal lease sales in Montana rarely attract more than a handful of bidders.

In 2020, federal leases issued in Montana went to Levi Sap Nei Thang, a Myanmar perfume magnate, who took advantage of Trump administration lease sales to reclaim acres from the western state, which were then sold for much higher prices on social media. Federal lease records show that in 2020, the 11,713 federal acres leased in Montana all went to Thang for about $1.50 per acre, plus a bonus payment of about $20.13 per acre.

A Reuters investigation found that a sample of leases that Thang bought that year for $213,000 were later sold for $550,000. In some cases, leases have been reversed for 13 times what Thang paid.

That September 2020 sale, in which Thang was the only person to buy federal leasehold land in Montana, turned out to be BLM’s only leasehold sale in Montana for 21 months, a delay caused by President Joe Biden who suspended lease sales during his first weeks in office. Biden had campaigned as the 2020 presidential candidate to end oil and gas drilling on federal lands to reduce greenhouse gas emissions. A federal court ultimately ordered the leases to continue, which triggered the sale of Montana on June 30, 2022, before quarterly leases were again blocked.

Leases are expected to resume in 2023 under new rules passed under the Cut Inflation Act, said Alan Olson, executive director of the Montana Petroleum Association. Oil producers are not happy with increased royalties or new lease rates of $3 an acre for the first two years, $5 for the next five, then $15 an acre thereafter. All lease sales also now require a minimum bonus bid of $10 per acre.

The new lease terms will add to what Olson said is already a difficult cost for preparing a federal lease site.

“It will definitely increase the cost of doing business on federal lands. The new royalty rate is 16.67%. It’s the same as renting state land in Montana, but you can get a state drill permit for $125. A federal permit costs $10,950,” Olson said.

Non-competitive leases, most of which don’t produce oil or gas, still produce money for the federal government, some of which is passed on to the state, Olson said. Records show Thang’s 2020 federal land leases in Montana produced a $235,872 bounty paid to the government. There’s no environmental consequence, which means there’s not much to object to, Olson said.

The legal battle over the president’s ban on drilling for oil and gas on federal lands has been at the center of delays in federal sales, which by law are supposed to occur quarterly. But Olson said the industry’s challenge stems from the original suspension. The new rules passed under the Cut Inflation Act mark the start of production under the president’s terms, although it is not the suspension Biden promised his supporters.

“That’s where the big problem started,” Olson said. “He campaigned on ‘more oil and gas.’ Now he’s begging us to pump faster, drill more, and woo foreign governments for oil and everything. That’s his policy.

Olson said he would like to see BLM consider the true carbon cost of importing oil versus the cost of domestic production.

“What is the social cost of carbon and environmental damage when we have to start importing oil from the Middle East, West Africa or Central America? That should drive up the carpet count through the roof,” Olson said.