Energy and Mineral Development on Federal Land

Energy and Mineral Development on Federal Land

February 6, 2015
Energy and Mineral Development on Federal Land
Background
authorizes both competitive and noncompetitive bidding
Energy production on federal lands accounts for a
processes for oil and gas exploration and production leases.
significant amount of total U.S. energy production. For
example, in FY2013, approximately 27% of crude oil, 18%
In a competitive lease sale, a bonus payment is required to
of natural gas, and 41% of coal production came from
win the lease. Non-competitive leases are initiated by an
federal lands. Geothermal electric generating capacity on
application process. Rents are then paid on a per-acre basis
federal lands represents 40% of U.S total geothermal
prior to production. The revenue associated with the
capacity. Solar and wind energy potential on federal lands
onshore leasing process is collected and disbursed by the
is growing and based on Bureau of Land Management
Office of Natural Resource Revenues (ONRR).
(BLM) approved projects, there is potential for 5,000
megawatts (MW) of wind and nearly 8,800 MW of solar
Another controversial issue is the permitting process and
energy annual capacity on federal lands, although currently
timeline, which the Energy Policy Act of 2005 (EPAct05)
the level of generation is low. The volumes and value of
revised for oil and gas permits. Although the time it takes
non-fuel mineral production on federal lands are uncertain
BLM to process applications has decreased since FY2006,
because there are no reporting requirements, but could be
the time it takes applicants to respond and resolve issues
high, especially for gold, the primary mineral mined (by
with the applications has increased over the same time
value) on federal lands.
period. EPAct05 also authorized a pilot project to improve
efficiency of processing oil and gas permits through
Three royalty debates may be revived in the 114th Congress:
FY2015. After three years of implementation, a 2008 BLM
(1) whether to increase the statutory minimum rate for
report described improved interagency communication and
onshore federal oil and gas leases from 12.5% to 18.75%,
a reduction in the time needed for BLM to review and
(2) whether to enact revenue sharing laws for Outer
process permit applications in the pilot locations. The
Continental Shelf (OCS) leases to include all coastal states,
Administration has proposed to extend the pilot, while
and (3) whether to charge a royalty on hardrock locatable
some Members of Congress have proposed to make the
minerals produced on federal public domain lands.
pilot program permanent. There is language in EPAct05
that requires the Secretary of the Interior to make “a
Minerals (fuel and non-fuel) are an exhaustible resource;
recommendation to the President regarding whether the
when extracted today they are unavailable for extraction at
pilot project should be implemented throughout the United
a later date. The miner must decide whether to produce now
States.”
or in the future. If production occurs now, the miner must
consider the value of foregone future production. A mineral
Raising the Onshore Oil and Gas Royalty Rate
royalty is a payment to the resource owner for the
A mineral royalty is a payment to the resource owner for
extraction of the mineral. In the mining industry the royalty
the extraction of the mineral. Typically, in the mining
is typically based on production ($/ton) or income (percent
industry the royalty is based on production ($/ton) or
of gross or net income). For federal oil and gas leases,
income (percent of gross or net income). For federal oil and
royalties are assessed on the gross value of production
gas leases, royalties are assessed on the gross value of
minus allowable deductions.
production minus allowable deductions. There is precedent
for raising federal oil and gas lease royalty rates. Under the
House and Senate bills in the 113th Congress proposed to
Bush Administration in 2008, Interior Secretary Dirk
raise the minimum rate from 12.5% to 18.75% on oil and
Kempthorne raised the deepwater rate for new leases from
gas produced on federal leases, provide for revenue sharing
12.5% to 16.67%. Then, in 2009, Secretary Ken Salazar of
of OCS revenues, and establish a “gross proceeds” royalty
the Obama Administration increased the royalty rates for
on federally owned locatable mineral production.
new offshore leases to 18.75%. The lower federal onshore
royalty rate (12.5%) for oil and gas may be viewed as an
Onshore Oil and Gas
incentive rate to encourage bidding on federal lands.
Development of oil and gas on federal lands is governed
primarily by the Mineral Leasing Act of 1920 (MLA) (30
Coal
U.S.C. §181). Leasing auctions and implementing activities
As a result of high volumes of coal production on federal
are administered by the Bureau of Land Management
lands, there are several congressional concerns, such as how
(BLM) for all federal lands. The MLA authorizes the
to balance coal production against other resource values for
Secretary of the Interior—through the BLM—to lease the
federal lands. Other concerns include how to assess the
subsurface rights to virtually all BLM and Forest Service
value of the coal resource, what is the fair market value
(FS) lands that contain fossil fuel deposits, with the federal
(e.g., minimum bids) for the coal, and what should be the
government retaining title to the lands. The MLA
government’s royalty. In response to these congressional
concerns, a 2013 GAO analysis found inconsistencies in
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Energy and Mineral Development on Federal Land
how BLM evaluated and documented federal coal leases. In
Revenue Sharing
addition, a 2013 DOI Inspector General report found BLM
The largely decentralized revenue-sharing system for
may have violated provisions in the MLA by accepting
onshore federal energy and mineral resources under the
below-cost bids for federal coal leases. The Secretary of the
Mineral Leasing Act of 1920 provides states generally with
Interior announced the initiation of a new rule for the
a 50% share of revenues collected (rents, bonuses, and
valuation of coal. It is uncertain when a final rule will be
royalties), less 2% for administrative costs; Alaska,
promulgated.
however, receives 90% of all revenues collected on federal
onshore leases (less administrative costs). This is different
Renewables on Federal Land
from the much more centralized system used for offshore
The Obama Administration has placed a high priority on
revenue, which has much less revenue sharing. Revenue
renewable energy projects on federal lands because of its
sharing from OCS leases occurs under the Gulf of Mexico
concern over the impact of emissions from fossil fuel-fired
Energy and Security Act (GOMESA) enacted in 2006 (P.L.
power plants. Interest in renewable energy sources has also
109-432) for four Gulf coastal states: Louisiana, Texas,
been driven by the increasing adoption of statewide
Alabama, and Mississippi. The states collect 37.5% of
renewable portfolio standards that require electricity
leasing revenues from selected leases off their coasts.
producers to supply a certain minimum share of electricity
Another revenue sharing feature of offshore leases allows
from renewable sources. Both BLM and FS manage land
the states to collect 27% of leasing revenues from leases
that is considered suitable for renewable energy generation,
within three miles beyond the states’ offshore boundaries.
and as such have authorized projects for geothermal, wind,
A relatively small amount was disbursed to coastal states
solar, and biomass energy projects. Congressional interest
from offshore leases because the vast majority of GOMESA
in renewable energy resources on onshore federal lands has
revenue begins to flow to the states after 2017. For
focused on whether to expand the leasing program for wind
example, in FY2014, this share was about $38 million out
and solar projects versus the current rights of way process
of nearly $2.2 billion in total state onshore and offshore
and how to balance environmental concerns with the
disbursements.
development and production of these resources. These
environmental concerns include wildlife impacts from wind
Mining on Federal Lands
turbines and water supply requirements for solar energy.
Mining of hardrock minerals on federal lands is governed
primarily by the General Mining Law of 1872. The original
Outer Continental Shelf (OCS)
purposes of the Mining Law were to promote mineral
The Outer Continental Shelf Lands Act (OCSLA) of 1953,
exploration and development on federal lands in the
as amended, provides for the leasing of OCS lands in a
western United States, offer an opportunity to obtain a clear
manner that protects the environment and returns revenues
title to mines already being worked, and help settle the
to the federal government in the form of bonus bids, rents,
West. The Mining Law grants free access to individuals and
and royalties. OCSLA requires the Secretary of the Interior
corporations to prospect for minerals on open public
to submit five-year leasing programs that specify the time,
domain lands, and allows them, upon making a discovery,
location, and size of the areas to be offered. Each five-year
to stake (or “locate”) a claim on the deposit. A valid claim
leasing program entails a lengthy multistep process that
entitles the holder to develop the minerals. The Mining Law
includes environmental impact statements. After a public
continues to provide the structure for much of the western
comment period, a final proposed plan is submitted to the
mineral development on public domain lands.
President and Congress. (For details of the OCS oil and gas
leasing framework, see CRS Report R40806, Energy
Establish a Locatable Mineral Royalty
Projects on Federal Lands: Leasing and Authorization, by
Western mining, although not as extensive as it once was, is
Adam Vann.) The Bureau of Ocean Energy Management
still a major economic activity. Industry officials argue that
(BOEM) administers the offshore energy leasing program.
the current claim-patent system enhances a company’s
ability to bring an economic deposit into production. They
The new five year Draft Proposed Program (DPP) for the
contend that restrictions on free access and security of
next five-year leasing program (2017-2022) was released
tenure would curtail exploration. Mining Law critics
January 27, 2015. There would be 14 lease sales in the
consider the claim-patent system a giveaway of publicly
OCS, including sales in the Mid and South Atlantic
owned resources because of the absence of royalties and the
Planning Areas and in Alaska’s Chukchi Sea, Beaufort Sea,
small charges associated with keeping a claim active and
and Cook Inlet Planning Areas. Certain areas (e.g., most of
obtaining a patent.
the Eastern Gulf of Mexico, Alaska’s North Aleutian Basin
Planning Area and selected parts of the Chukchi and

Beaufort Seas) have been withdrawn and placed off-limits
for oil and gas leasing activities. Once finalized, the new
Marc Humphries, Specialist in Energy Policy
five-year leasing program would be implemented in August
2017.
IF10127

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Energy and Mineral Development on Federal Land

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