US set to resume onshore leasing next week

US oil and gas companies next week will get their first chance since January 2021 to acquire new drilling rights on federal land, but with a slimmer pick of parcels and a far higher royalty rate.

The competitive sales will be the first federal onshore oil and gas lease sales since President Joe Biden took office. Leasing will begin on 14 June and 16 June for acreage in Nevada and Colorado, followed by sales later this month in Wyoming, New Mexico, Oklahoma, Montana, North Dakota and Utah.

But the US Interior Department, which is holding the six sales to comply with a court order, cut back on the acreage up for leasing to avoid disturbing wildlife habitat and cultural areas. It intends to offer 173 parcels on 144,000 acres, about one-fifth of the acreage considered under former president Donald Trump. It also raised the royalty rate to 18.75pc, the first-ever increase from the longstanding rate of 12.5pc.

The limited acreage up for lease and the 50pc higher royalty rate could diminish bidding, industry officials say, even with Nymex WTI crude futures topping $120/bl in recent days. Industry officials say royalty rates should have been kept low to offset the costs related to litigation and complying with stringent federal rules.

Bidding is likely to be muted in the first sale on 14 June in Nevada, in large part because of geology. The two latest lease sales in Nevada, held in 2020, raised just $93,000 on the sale of 13 parcels of 56 offered. The Interior Department plans to only offer five parcels in next week's Nevada sale.

The next sale, on 16 June in Colorado, could draw more interest but is likely to be limited by only offering nine parcels, down from 119 parcels. The two latest Colorado sales, also held in 2020, raised nearly $2.1mn in bonus bids by leasing 87 parcels of 100 parcels that were offered.

Oil industry officials plan to more closely watch the 21 June sale in Wyoming that will offer 129 parcels. Bidding on acreage in Wyoming has recently been high, with the last federal lease sale in December 2020 raising $7mn on the sale of 181 parcels. But industry officials have balked at the administration's decision earlier this year to defer leasing on 61 parcels.

"Deferral of these parcels will actually result in additional surface disturbance because companies will not be able to effectively develop their leases with longer horizontal wells," trade group the Western Energy Alliance said in an 18 May protest.

The resumption of lease sales come at a time of heightened scrutiny of the government's oil and gas program. A federal judge last week denied industry requests to block legal settlements with environmentalists under which the Biden administration intends to revisit oil and gas lease sales on nearly 4mn acres in New Mexico, Colorado, Utah, Wyoming and Montana.

At issue in that litigation is the level of climate-related review the Interior Department should have done before holding oil and gas lease sales in those states in 2016-21. A federal judge in 2019 already ruled that climate analyses were inadequate for some of those sales. The settlement allows the Interior Department a chance to address the concerns for all of the leases.

By Chris Knight