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Oil-gas lease moratorium: Not much impact in Montana

No current operating rig on fed lands in MT
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Posted at 4:31 PM, Feb 01, 2021
and last updated 2021-02-01 19:40:19-05

Editor’s note: This is the second of a two-part series on the Montana impacts of President Joe Biden’s executive orders on oil-and-gas development.

While President Biden’s order to halt oil-and-gas leasing on federal lands has been blasted by the industry and GOP members of Montana’s congressional delegation, the impact on actual production or revenues in the state appears minimal.

Not a single oil rig is operating on federal land in Montana, and companies with existing federal leases can still explore and drill, if they choose.

If they do choose to develop those leases, they’ll still pay royalties to state and federal governments. And, last year, oil companies leased just 22,000 acres in Montana and North Dakota, paying a grand total of just over $300,000 to the two states combined.

“This is not going to impact (the industry), at least in Montana, because they’re not moving forward with developing these leases anyway,” says Anne Hedges, executive director of the Montana Environmental Information Center. “They’ve been hording these leases.

“But they’ve been getting these leases for a song – and we should not be selling public lands for a long.”

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Anne Hedges, Montana Environmental Information Center.

President Biden issued his order last week, calling for a full review of a system his administration called “fundamentally broken.” The order does not affect leasing on state, tribal or private lands, which account for more than 80 percent of U.S. oil production.

Critics of the federal program say it grants leases at below-market prices, charges below-market royalties, and allows oil companies to tie up these lands for years, when the public land could be prioritized for other uses.

Montana Rep. Matt Rosendale and Sen. Steve Daines, both Republicans, have promised to introduce legislation in Congress to revoke Biden’s order – although that legislation is not likely to pass.

The industry has said the leasing moratorium will cost oil-and-gas jobs and reduce lease revenue to affected states.

Alan Olson, executive director of the Montana Petroleum Association, also told MTN News that production on private or state lands could be affected by the ban on federal mineral leasing.

That production, particularly with horizontal drilling, could end up entering oil fields that are under federal land, he said.

Alan Olson, Montana Petroleum Association.

“Are we going to be able to drill even though there is federal mineral acreage in there?” Olson said. “Are we going to have to find a way of spacing the federal minerals out and bypassing them?”

Hedges said she doubts the moratorium on leasing will have much effect on current production, noting that the industry already is sitting on thousands of acres of leased minerals without exploring or producing.

“The federal government has issued so many leases, and yet those leases aren’t being developed because the market is so low,” she said. “It’s a really good time to take a step back – not just for climate-change purposes, but for water-quality purposes.”

Hedges’ group and several others also filed suit in federal court three weeks ago, asking a judge to block federal oil-and-gas leases issued in Montana and North Dakota in 2019 and 2018.

The suit said federal regulators failed to evaluate the impacts the leases would have on climate and water-quality.

In Montana and North Dakota, under the Trump administration, the U.S. Bureau of Land Management offered 924 parcels for oil-and-gas leasing, covering 469,000 acres.

Only 406 parcels received bids, covering 207,000 acres – about 40 percent of what was offered. The total bid revenue was $7.6 million, half of which is divided among the two states, depending on where the leases occurred.

Bidding fell off substantially last year, to only 46 parcels covering 22,000 acres in the two states, generating $617,000 in revenue.

Under the Biden moratorium, oil-and-gas production can continue on current federal leases and royalties on production will continue to be paid.

About 20 percent of U.S. oil production comes from wells on federal land. However, in Montana, there’s currently no operating oil rig on federal land.

Hedges says if federal lands – and other lands -- in Montana remain wedded to fossil-fuel development, rather than cleaner, cheaper energy, the state will lose out on future development.

“The energy economy is changing whether people like it or not,” she says. “If Montana doesn’t get ahead of the curve and engage in that clean-energy system, we are going to be left behind. We’re going to lose tax revenue, jobs and economic opportunity across the state.”