In the latest installment of our video series on important regulatory and legislative updates, Associates Emily Rohles and Andrew Swallows discuss the U.S. Department of the Interior's (DOI) report on federal oil and gas leasing practices. Associate Laura Williams discusses the EPA and U.S. Army Corps of Engineers' proposal to redefine “waters of the United States” or “WOTUS,” the appointments of Regional Administrators for EPA Regions 6, 7, and 9 and President Biden’s executive order “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability."

 

On November 26, 2021, the Department of the Interior (DOI) released its report of recommended changes to the federal oil and gas leasing program. The report did not establish a timeline to implement leasing reforms, but exploration and production companies with federal leases or looking to lease federal land should be aware of the potential for increased costs and government oversight over federal mineral leases.

The report recommends several changes to federal leasing programs to achieve three main goals:

• First, to provide a fair return to the American public and States from Federal management of public lands and waters;
• Second, to Design more responsible leasing and development processes; and
• Third, to Create a more transparent, inclusive, and just approach to leasing.

The report’s first goal of providing a fair return boils down to increasing government revenues and reducing lease speculation. For on shore leases, the report recommends that the Bureau of Land Management, or BL,M initiate rulemaking to establish a higher minimum royalty rate, increase lease bonus payments, and increase delay rental rates for future leases. The report also asks the Bureau of Land Management to limit discretionary royalty relief, increase minimum surety bond amounts for future leases, and increase bond amounts for existing high-risk leases.

For offshore leases, the report’s recommendations are to incorporate the costs of emissions into royalty rates, provide stronger financial assurances, and inhibit companies with poor environmental safety or reclamation histories from bidding for or acquiring leases. The most significant recommendation may be that the Bureau of Ocean Energy Management develop “Fitness to Operate” standards which would establish mandatory criteria that companies must meet in order to operate on the U.S. Outer Continental Shelf.

The DOI’s second goal of designing more responsible processes involves increasing government oversight. For onshore leases, the report recommends that the BLM update the “conditions of approval” for permits to drill and ensure that oil and gas leasing is not prioritized over other uses, carefully consider expected yields of oil and gas, prospects of Federal royalty payments, conflicts with other uses, and the views of local communities, Tribes, businesses, and State and local governments. The report recommends that the BLM focus on nominating and leasing areas with moderate or high potential for oil and gas resources. The report also recommends that the BLM ensure bidders and any subsequent proposed leaseholders or operators are publicly identified and financially and technically qualified to develop leases.

For offshore leases, the report recommends that the Bureau of Ocean Energy Management consider moving to a leasing model where smaller areas are offered based on environmental protection, subsistence use needs, resource potential, and financial considerations.

To achieve its third goal of creating a more inclusive and just approach to managing federal land, the report recommends that the DOI solicit more public input from local community voices into the leasing and permitting process.

To sum it all up, the report’s recommendations primarily involve increasing government revenue through raising royalty rates and increasing payment amounts. However, companies should be aware of the potential creation and implementation of “Fitness to Operate” standards and “conditions of approval,” which companies may have to satisfy in order to operate on the Outer Continental Shelf or be granted a permit to drill. There are no specific implementation timelines for these recommendations, and, notably absent, is any substantial mention of climate policy.

The EPA and the U.S. Army Corps of Engineers recently proposed to redefine “waters of the United States” or “WOTUS.” This term, which establishes coverage of the Clean Water Act’s many programs, has been the subject of five U.S. Supreme Court decisions. The Biden Administration’s proposal would restore a 1986 WOTUS definition with some changes reflecting the Supreme Court opinions, and significantly broaden the scope of jurisdictional waters. Under the proposal, many more waters that would be covered by the Clean Water Act than under the 2020 Trump Administration rule which is vacated. While the Biden proposal makes its way, EPA and the Crops are interpreting “waters of the U.S.” under a pre-2015 regulatory regime. The agencies will take comments on the WOTUS proposal through February 7, 2022.

EPA Administrator Regan announced the appointments of Regional Administrators for EPA Regions 6, 7, and 9.  Dr. Earthea Nance will head up Region 6, serving Arkansas, Louisiana, New Mexico, Oklahoma, Texas, and 66 Tribal Nations. Nance was an Associate Professor at Texas Southern University, and director of disaster mitigation and planning for the City of New Orleans post-Hurricane Katrina. She is a registered professional civil engineer and a certified floodplain manager.

Meg McCollister will serve in Region 7, covering Iowa, Kansas, Missouri, Nebraska, and 9 Tribal Nations. McCollister advised local elected officials in California and served on the Board of Directors of Sonoma County Conservation Action. Her expertise is in environmental, health, and social improvement initiatives and community engagement.

Martha Guzman is the Regional Administrator for Region 9, serving Arizona, California, Hawaii, Nevada, the Pacific Islands, and 148 Tribal Nations. Previously a Commissioner at the California Public Utilities Commission, Ms. Guzman also served in the California Governor’s Office, as the Sustainable Communities program director for the California Rural Legal Assistance Foundation, and with the United Farm Workers.

Finally, President Biden’s recent executive order, “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability,” directs the federal government to decarbonize by 2050, including measures such as zeroing out greenhouse gas emissions from federal vehicle fleets, federal buildings, and federal procurements. The order includes interim directives, such as directing the federal government to draw all electricity from carbon-free sources by 2030; halving greenhouse gas emissions from federal buildings by 2032; and achieving a net-zero emissions building portfolio by 2045. The order aligns with goals outlined by President Biden at the 2021 United Nations Climate Change Conference in Scotland.

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