Potential State Impacts of a Pause on Federal Onshore Oil and Natural Gas Leases

Potential State Impacts of a Pause on Federal Onshore Oil and Natural Gas Leases

link to page 1 link to page 2

March 10, 2021
Potential State Impacts of a Pause on Federal Onshore Oil and
Natural Gas Leases
On January 27, 2021, President Biden signed Executive
production to market. The Bureau of Land Management
Order (E.O.) 14008, Tackling the Climate Crisis at Home
(BLM) indicates that over 14,000 leases are not in
and Abroad. Among other actions, this E.O. instructs the
producing status: out of 38,294 oil and gas leases, 24,127
Secretary of the Interior (SOI) to “pause new oil and natural
were in producing status in FY2019. Bringing a federal
gas leases on public lands or in offshore waters pending
lease into production can take years, and full production
completion of a comprehensive review and reconsideration
from each lease typically requires multiple wells. BLM
of Federal oil and gas permitting and leasing practices.”
indicates that 1,260 wells were completed in FY2019.
This E.O. was preceded by Secretarial Order (S.O.) 3395,
issued by the Department of the Interior on January 20,
Some might assert that the non-producing leases represent
2021. The S.O. suspends certain delegated authorities to
resources that are not presently economical to develop, and
bureaus and offices for 60 days, including the authority to
that new federal leases (in areas with expected favorable
issue an authorization, including “a lease, amendment to a
economics) are necessary to avoid declines in production.
lease, affirmative extension of a lease, contract, or other
Typical oil and natural gas wells under existing leases are
agreement, or permit to drill”; the authority to authorize
drilled into shale formations and are completed using
such actions is retained in a number of indicated positions.
hydraulic fracturing. Such wells experience high initial
levels of production, which decline rapidly over the first
The federal onshore mineral estate is approximately 710
few years. If no new leases are signed and if relatively
million acres; much of this is open to mineral development,
fewer new wells are completed on existing leases,
pursuant to various laws and authorities. Development of
production declines could result from the geophysical
these resources contributes to total U.S. energy production:
characteristics of hydraulically fractured wells.
in 2019, approximately 6.1% of crude oil and 9.6% of
natural gas production (percent of total U.S. production)
Variation in Production for Selected
came from onshore federal lands.
States
Reviewing production contributions from some states with
The SOI is authorized by the Federal Land Policy and
federal leases can inform an understanding of potential
Management Act (FLPMA), codified at 43 U.S.C. §§1701
impacts to these and other states. In the two figures below,
et seq., to identify suitable uses of public lands, including if
the five states shown for each commodity were the top
lands are suitable for mineral development. The Mineral
producers of that commodity from federal leases in 2019
Leasing Act of 1920 (MLA), codified at 30 U.S.C. §§181 et
and the nine previous years.
seq., requires onshore oil and natural gas lease sales to
occur quarterly if suitable parcels are available.
Figure 1 and Figure 2 depict the top producing states’
production from federal leases as a percent of that state’s
Various interested parties have raised questions regarding
total production for oil and natural gas, from 2010 to 2019.
the impacts of the EO’s leasing pause, including questions
The data generally indicate slow moving trends that are
of the severity of impacts on oil and natural gas production
somewhat flat to negative; the ranking among these states
and state revenues from federal leases. Reviewing
changes little over the 10 years shown in both figures.
information related to federal onshore leases may assist in
the discussion of the potential impacts of the leasing pause.
Figure 1. State’s Oil Production from Federal Leases
as a Percent of State’s Total Oil Production
Potential Impacts of the Leasing Pause
on Oil and Natural Gas Production
The leasing pause could affect a number of states with
varied intensity. In 2019, 24 states produced some oil from
federal onshore leases and 27 states produced some natural
gas from federal onshore leases. Although bringing any
lease (federal or nonfederal) into production depends on
many factors unrelated to the leasing pause, this discussion
focuses on how a temporal gap in new leases could affect
production over time.

Source: CRS calculations using data from the Office of Natural
Resources Revenue (ONRR) and the Energy Information
Some data suggest that the potential impacts of the pause on
Administration (EIA).
new leasing would not occur for years, as the completion of
new wells on existing leases could continue to bring new
https://crsreports.congress.gov

link to page 2 link to page 2

Potential State Impacts of a Pause on Federal Onshore Oil and Natural Gas Leases
Figure 2. State’s Natural Gas Production from
include severance taxes on production, taxes on
Federal Leases as a Percent of State’s Total Natural
corporations working in the sector, and income taxes on
Gas Production
employment in the sector.
Figure 3. Federal Onshore Oil and Gas Lease Revenue
Contributions to Selected State Budgets

Source: CRS calculations using data from ONRR and EIA.
Two main factors contribute to the data shown in both
figures: geology and the federal mineral estate. A given
state’s oil and natural gas production is greatly affected by
its geology, and production from federal leases requires that

Source: CRS calculations using data from ONRR and EIA.
any suitable geologic formation lies within the federal
mineral estate. The locations of geologic formations in the
Notes: The area of the circle represents the percentage of the
United States suitable for oil and natural gas development
state’s budget from disbursements from federal oil and natural gas
using current technology fall predominantly outside the
leases (also noted in data label text). Al data are for the period July
federal mineral estate. Approximately 24 million acres of
2019 to June 2020. Data for California (not shown) are Budget: $127
suitable geologic formations (shale plays) fall within the
bil ion; Disbursements: $31 mil ion; and Percentage: 0.02%.
federal mineral estate (i.e., 10% of onshore shale plays); the
Potential Options for Congress
amount of suitable area varies greatly from state to state.
The leasing pause and the potential for associated impacts
Potential Impacts on State Budgets
raise a number of options Congress could consider. Some
One concern raised by some states regards the potential for
potential options include:
the leasing pause to reduce state revenues. States, other than
Alaska, receive 49% of the revenues collected from federal
Status Quo. As the potential impacts related to the leasing
onshore oil and natural gas leases. If the leasing pause leads
pause generally have yet to materialize, Congress could
to reduced production, royalty revenues would decline,
wait for such impacts to materialize before determining if
reducing disbursements to states. Royalties are assessed on
congressional action is needed. Similarly, Congress could
the value of the commodity produced and resulted in 95%
hold hearings or commission studies in advance of any
of total federal revenues from onshore oil and gas leases in
impacts with the intent of assessing the timing and severity
FY2020.
of the potential impacts.
Figure 3 highlights contributions to state budgets from
Mitigate Potential Impacts. Congress could create a
disbursements of federal oil and natural gas lease revenues.
program to assist states potentially impacted by the leasing
For five of the six states included in the previous two
pause. Such a program, for example, could be structured to
figures, this figure shows (for the states’ FY2020)
provide benefits only if potential impacts cross an indicated
disbursements, budgets, and percentage contributions to the
threshold. Alternatively, benefits could be determined by a
budget from the disbursements. New Mexico, which is the
formula incorporating historical revenue (similar to the
largest recipient of federal disbursements from oil and
Secure Rural Schools program, 16 U.S.C. §§7101-7153,
natural gas leases, is also the state with the greatest share of
which makes payments to counties based in part on
its budget (10.95%) stemming from these revenues.
historical revenues generated on certain federal lands).
Wyoming is the only other state shown with more than 1%
of its state budget (7.78%) originating from these
Amend Related Laws. Congress sometimes considers
disbursements. The potential impacts on other states,
amendments to the MLA and FLPMA. Congress could
including those not included in this figure, would vary, but
consider options such as amending the MLA to allow less
the impacts would likely be less than the impacts on these
frequent or to require more frequent lease sales, or
top producing states.
amending FLPMA to rescind or strengthen the authority of
the SOI to consider the suitability of lands for certain uses.
The one-year time period portrayed in Figure 3 includes
some impacts from the COVID-19 pandemic. These
See also CRS Report R46537, Revenues and Disbursements
impacts could include reduced disbursements and reduced
from Oil and Natural Gas Production on Federal Lands, by
state budgets, among others.
Brandon S. Tracy.
In addition to the budget contributions these disbursements
Brandon S. Tracy, Analyst in Energy Policy
represent, states can derive revenue streams from activities
IF11785
related to federal oil and natural gas leases. Examples
https://crsreports.congress.gov

Potential State Impacts of a Pause on Federal Onshore Oil and Natural Gas Leases

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF11785 · VERSION 1 · NEW