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Oil and Gas Companies, Not Taxpayers, Should Clean Up Their Own Mess

Decades-old policies fail to protect taxpayers and communities from the broken oil and gas leasing system; advocates say the Department of the Interior should follow through on rulemaking

WASHINGTON, D.C. – The U.S. Department of Interior must do more to fix a broken oil and gas leasing system, government transparency and taxpayer protection groups wrote in a letter to the federal agency Wednesday.

The letter – signed by Public Citizen, Taxpayers for Common Sense, and Project On Government Oversight – calls on the Department of Interior to update 60-year-old federal bond requirements, raise royalty rates, and limit leasing to lands with high potential for development.

“With new lease sales around the corner, time is of the essence. Continuing forward with onshore oil and gas lease sales without implementing needed reforms will lock the federal government into bad deals that continue to shortchange taxpayers. The federal onshore oil and gas leasing system is failing taxpayers, and every new lease signed under these terms is a loss,” the groups wrote in the letter, which asks for several leasing reforms, including bond requirements.

Corporations awarded a lease to drill on federal land must post a bond. If the leasing corporation abandons an exploration site, goes bankrupt, or fails to plug a well securely, the posted bond covers the cost of doing so. Because the bonding requirements are decades old, the bonds are often insufficient to cover the expenses today, handing taxpayers a bill for the difference. As of 2019, the federal government estimated that the average cost to plug a well was approximately 10 to 70 times more than the average posted bond held by the Interior Department’s Bureau of Land Management.

The letter also requests the Interior Department solidify an 18.75% minimum royalty rate for onshore oil and gas development, which the department implemented in oil lease sales earlier this year, and establish protections to make it harder for fossil fuel companies to lock up federal lands that have little potential for oil and gas drilling. Earlier this year, the Inflation Reduction Act established a new minimum onshore royalty rate of 16.67%. Although 16.67% is an improvement compared to the outdated rate of 12.5%, which taxpayers were stuck with for over a century, it still lags what states, including Texas and Louisiana, charge for oil and gas production on state lands.

“The federal oil and gas leasing system is broken,” said Autumn Hanna, vice president of Taxpayers for Common Sense. “Important reforms were included in the Inflation Reduction Act, but more must be done. Bonding rates haven’t changed since the 1960s and federal royalty rates are less than what states charge. The Department of the Interior must take steps – through a formal rulemaking – to reform these outdated policies.”

“Just like any elementary school kid knows, if you make a mess, you need to clean it up,” said Alan Zibel, a Public Citizen researcher focused on oil and gas issues. “It’s bad enough that we allow fossil fuel companies to drill on federal lands. The least we can do is ensure taxpayers don’t get stuck subsidizing the fossil fuel industry’s cost of doing business. It is unfair to expect taxpayers to pick up the bill when a company does not honor its promise to plug a well or pay for someone to do it.”

“Taxpayers should not be footing the bill when an oil or gas company fails to plug a well,” said Joanna Derman, policy analyst at the Project On Government Oversight. “These reforms will bring much-needed accountability to ensure oil and gas companies clean up their hazardous mess on public lands.”

A 2018 Center for Western Priorities analysis found that plugging all wells on federal lands would cost an estimated $6 billion. A recent report found taxpayers lost up to $13.1 billion during the last decade because royalty rates are so low.