Proposed BLM rules too costly for Montana's low-output wells - Billings Gazette

Proposed BLM rules too costly for Montana's low-output wells

New federal oil and gas leasing rules proposed recently would have a chilling effect on Montana’s marginal oil plays.

The long-anticipated rules changes posted Thursday by the Bureau of Land Management include a required cleanup bond of $150,000 per well, up from the $10,000 amount that hadn’t been adjusted in 63 years.

Both conservationists and the petroleum lobby say the higher bonding amount would scuttle leasing in low-probability areas, which is mostly what Montana has. Several changes by BLM were already in play to end bidding in noncompetitive areas.

“In the last decade alone, 220,000 acres of Montana’s public lands were leased non-competitively,” said Aubrey Bertram, climate energy program director for Wild Montana. Many of those lands were critical habitats for wildlife including sage grouse, a sensitive species. “These leases almost never, ever, ever result in any commercial development much less any return for taxpayers. And just at its core, non-competitive leasing was always a very wasteful practice that for decades forced the BLM to expend limited public agency time and resources, administering these leases that were never going to return anything in the first place.”

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Most likely to be affected in the drilling world are the small independent producers, a class of nearly 10,000 operators who develop 91% of U.S. wells. The Independent Petroleum Association of America said the rules proposed Thursday will drive some from federal lands.

“These excessive increases on bonding rates and other activities will hamper independent producers’ ability to operate on federal lands,” said Dan Naatz, IPAA’s executive vice president, in the organization’s official response.

“The Bureau of Land Management’s proposals reflects a baseline disregard for the challenges that producers face in putting drilling packages together when they operate on federal lands – not only are companies working with the federal government, but also states and private landowners. Companies pay ever-increasing rents on leases as they assemble a framework for drilling and submit complex environmental stewardship plans, but the Biden administration continues to up the ante in their effort to reduce production despite growing energy needs.”

Most United States petroleum is produced in 13 states with the top three accounting for the majority of what was produced in 2022. Texas at 1.84 billion barrels, New Mexico at 574 million, and North Dakota at 386 million produced 2 billion more barrels than the next 10 states combined. The U.S. Energy Information Administration produces the data.

Montana, at 20.5 million barrels produced in 2022, ranked a distant 13th, slightly behind Ohio.

Abandoned wells have been a years-long problem that current bond limits haven’t fixed. The Montana Board of Oil and Gas Conservation is currently capping 237 abandoned wells across the state. The money isn’t coming from bonding, but rather $560 million in federal subsidies issued in 2022 for cleanup. The oldest abandoned well being capped was drilled in 1918, according to the state.

The U.S. Department of Interior announced in June that it would spend $63.8 million on its own orphaned well program in 16 states, with one Montana well on the list. Contaminated ground water and methane emissions are the biggest concerns with abandoned wells. Methane, a greenhouse gas, is more than 25 times as effective at trapping heat in the atmosphere than carbon dioxide. The Interior estimated in 2022 that there were 3.5 million abandoned wells in the United States, 39% of which were capped.

BLM counts 2,443 producible well bores on federal land in Montana.

Many changes in the proposed rule are already in place. Following the passage of the Inflation Reduction Act in summer 2022, BLM increased the royalty rate on new leases from 12.5% to 16.67%, a rate identical to Montana’s rate for leases on state land. The bureau was also to put an end to awarding leases in cases where there was only one bidder. The minimum per-acre lease price was increased from $2 to $10, with the rate stepping upward over the life of the well.

What’s next is a 60-day public comment period, which includes two virtual informational meetings, one in August, one in September, and three in person meetings in Salt Lake, Denver and Albuquerque.

Congressional Republicans have launched several attempts to prevent BLM from rolling out the new oil and gas leasing rules, including last week when House lawmakers attempted to block funding from being spent on the changes. In May, House Republicans attempted to return the rules to pre-IRA terms as part of their holdout negotiations against raising the debt ceiling.