New Report Finds Leasing Low-Potential Public Land For Drilling Brings In Low Returns
The Bureau of Land Management offers 10-year leases to energy developers through auctions, which have a minimum bid of $2 an acre. Parcels that don’t sell can be purchased afterward for $1.50 an acre.
But a report released this week by the Government Accountability Office found public land that sells for $2 per acre or less brought in a tiny fraction of revenue compared to those that sell for over $20. The report analyzed the first 10 years of all leases that began between 2003 and 2009, and found that those with bids above $100 per acre accounted for about 75% of total revenue, while leases that sold for less than $2 per acre generated about 5%.
That finding could have implications for the management of public land in Utah, where the bureau has continued to lease public land for drilling, despite plummeting demand for oil caused by the COVID-19 pandemic.
For example, in December the bureau offered up 23,649 acres in Utah, and only 4,284 acres sold. Of those, 4,205 went for the minimum bid of $2. The remaining 19,365 can now be picked up for $1.50 an acre.
Overall, the bureau has auctioned off around 700,000 acres of public land in Utah to energy developers in the past four years, and about a third of those went for $2 dollars or less.
The fact that parcels leased for low rates produce so little revenue for the federal and state governments is a good reason to stop leasing low-potential land to energy producers, according to Jason Keith. He runs a consulting group called Public Lands Solutions that advocates for recreation on public lands.
“Once these leases are issued, they’re prioritized for oil and gas,” Keith said. “And other uses like recreation, wildlife [and] conservation are given short shrift.”
He is working with Emery County right now to increase recreation opportunities there, and he said existing oil leases make it harder to plan trails and other infrastructure, because while they are technically open to recreation, the company that holds the lease could drill a well on them at any time.
“It doesn’t make any sense for a community like that to have parcels leased non-competitively,” he said. “Because they’re going to be locked up and it’s very unlikely there will be an economic benefit.”
But leasing public land at low cost is an important part of energy development in the West, because it increases the likelihood of new discoveries, according to Kathleen Sgamma. She’s president of Western Energy Alliance, an association for energy producers.
“If it is the next big find, then in the next lease sale, those adjacent leases go for much higher amounts, and then it produces royalties,” she said.
Sgamma said the GAO report failed to take that into account. She said she would have liked to see an analysis that looked at the effect low bid parcels that end up producing oil have on the lease prices for surrounding parcels.