Impacts of the Inflation Reduction Act of 2022 (Pub. L. No. 117-169) to the Oil and Natural Gas Leasing Program
All Field Officials
Assistant Director, Energy, Minerals, and Realty Management
Impacts of the Inflation Reduction Act of 2022 (Pub. L. No. 117-169) to the Oil and Natural Gas Leasing Program
Federal Oil and Gas Leasing Program.
This Instruction Memorandum (IM) provides the Bureau of Land Management (BLM) State Offices (SOs) with guidance for implementing the provisions of the Inflation Reduction Act (IRA) pertaining to Expressions of Interest (EOI), noncompetitive lease offers, pending competitive leases, and reinstatements. This IM updates expired policy IM 2014-004, Oil and Gas Informal Expressions of Interest. The BLM will issue additional IMs implementing specific provisions of the IRA.
This IM sets out the policy for implementing provisions of the IRA (Pub. L. No. 117-169), which became law on August 16, 2022, regarding EOIs, pending noncompetitive and competitive leases, and reinstatements for the oil and natural gas program.
Handling of Existing EOIs
The BLM will continue to process EOIs submitted prior to August 16, 2022. The BLM should close EOIs older than three years if the nominator no longer has an interest in pursuing the nominated acreage for leasing or if the BLM received the EOI anonymously. When the BLM closes an EOI in the National Fluids Lease Sale System (NFLSS) due to the age of the request, the BLM should update the EOI to an inactive status. The BLM will continue to publish information on EOI submissions on the NFLSS, including the nominator’s contact information. The BLM will no longer accept anonymous submissions because EOIs require payment of a filing fee as of August 16, 2022. Reference IM 2023-006 Implementation of Section 50265 in the Inflation Reduction Act for Expressions of Interest for Oil and Gas Lease Sales IM, for more information on EOI status.
EOI Filing Fee
As required by the IRA, EOIs transmitted on or after August 16, 2022, must include a nonrefundable filing fee of $5 per acre or fraction thereof. If the EOI is underpaid, the BLM will send a notice requesting the additional money owed, providing a reasonable period (e.g., 30 days) to submit payment. If the EOI remains underpaid after a reasonable period, the BLM will not process the EOI and will update the EOI status to Unable to Process – All Money Not Paid. If the BLM receives the EOI without a filing fee, the EOI should be updated in the NFLSS to a status of Unable to Process – All Money Not Paid until payment is transmitted. The BLM will not process EOIs that do not have the required filing fee. If the BLM is unable to process an EOI because the full filing fee has not been submitted, the BLM will not consider the EOI as submitted for the purposes of Section 50265(b)(1)(B)(ii) of the IRA. Refer to IM 2023-006.
The BLM will collect the nonrefundable filing fee for EOIs in the Collection and Billing System under the following Commodity, Subject, and Action:
Commodity: Oil and Gas
Subject: Competitive Application
Action: Expression of Interest
The IRA rescinded the BLM’s authority to issue noncompetitive leases under the Mineral Leasing Act (MLA) by striking 30 U.S.C. § 226(c). The BLM stopped accepting noncompetitive lease applications as of August 16, 2022, and will not accept new ones. The BLM will reject all pending noncompetitive lease applications in their entirety. The BLM will refund the first-year advance rental submitted with the application, but the non-refundable application fee will not be refunded.
All offices will inform offerors for noncompetitive leases that the BLM may no longer issue noncompetitive leases or accept noncompetitive offers by using the attached Noncompetitive Lease Decision template, Attachment 1.
In place of noncompetitive leasing, the BLM may re-offer the lands that do not receive an acceptable bid in a future sale.
The IRA removed BLM’s authority to issue reversionary noncompetitive leases under former 30 U.S.C. § 226(b)(3)(C), which now no longer appears in the United States Code. However, if an election was properly made prior to enactment of the IRA, the lessee is entitled to a noncompetitive lease of such lands under the prior law, as the BLM was obligated to issue the reversionary noncompetitive lease under former § 226(b)(3).
After the passage of the IRA, no further elections are allowed. The BLM may offer those lands previously considered for a reversionary noncompetitive lease on a competitive sale after receiving the consent and stipulations from the United States Forest Service. These lands will contain an existing well; therefore, the BLM will include language in the sale notice that states the following:
This parcel includes viable (unplugged or plugged) orphan well(s). Prior to lease issuance, the successful bidder must provide adequate bond coverage in accordance with 43 CFR 3104. Upon lease issuance, the successful bidder will be recognized as the operator of the well(s) and responsible for complying with all applicable regulations.
The IRA updated the terms for competitive leases. All competitive leases issued on or after August 16, 2022, must include the following lease terms:
Royalty Rate: 16.67 percent.
Rental Rate: $3.00 per acre, or fraction thereof, for the first 2 years; $5.00 per acre, or fraction thereof, for lease years 3 through 8; and $15.00 per acre, or fraction thereof, thereafter.
For pending competitive lease offers that have not been issued, the BLM will inform the successful bidders that the new royalty rate and rental rate lease terms must be included in the leases and the bidder must pay the additional rental before BLM may issue the leases. All offices should provide 30 days notification by using the attached Competitive Lease Notification template, Attachment 2.
If the successful bidder refuses to accept the new royalty rate and rental rate lease terms, the BLM will not issue the lease and will refund the bonus bid and advance rental paid to the remitter. The BLM may reoffer the lands at a future competitive sale.
All lease sales now require a minimum bonus bid of $10 per acre, or fraction thereof.
Leasing Under Special Acts
The Act of May 21, 1930 (30 U.S.C. §§ 301-306), authorizes either the leasing of oil and gas deposits under railroad and other rights-of-way to the owner of the right-of-way or the entering of a compensatory royalty agreement (CRA) with adjoining landowners. Under 30 U.S.C. § 305, the Secretary must determine the royalty rate and in no case can the royalty be less than 12.5 percent. The BLM’s regulations reflect these royalty requirements at 43 CFR 3109.1-5(b), which cross-references the regulatory provision setting the minimum royalty rate for leases issued under the MLA (43 CFR 3109.1-5). In light of the IRA’s changes to the royalty rates for leases issued under the MLA, BLM offices will require a royalty rate of 16.67 percent for new leases or CRAs under 30 U.S.C. §§ 301-306. This will provide for consistent lease terms, ensure a fair return to the public, and maintain the pre-existing policy of using the MLA lease rate for leases and CRAs issued under 30 U.S.C. §§ 301-306.
Unleased Land Accounts
The BLM will form an unleased land account (ULA) when an oil and gas agreement allocates production to an unleased Federal mineral tract within the agreement. The ULA historically included a 12.5 percent royalty rate. Due to the increased royalty rate in the IRA, the BLM must issue all new ULAs with a royalty rate of 16.67 percent and update existing ULAs to a royalty rate of 16.67 percent.
The IRA changed the grounds and conditions for certain reinstatements.
Class I Reinstatements
The IRA did not change the grounds or conditions for Class I Reinstatements.
Class II Reinstatements
Under the IRA, all Class II Reinstatements approved on or after August 16, 2022, must include the following terms:
Royalty Rate: 4 percentage points greater than the royalty rate within the lease and not less than 20 percent. For each succeeding reinstatement, the royalty will be increased by an additional 2 percentage points.
Rental Rate: $20.00 per acre, or fraction thereof. For each succeeding reinstatement, the rental will be increased by an additional $5.00 per acre, or fraction thereof.
Class II reinstatements are now limited to: (1) competitive leases and (2) noncompetitive leases issued for acquired lands. The IRA rescinded the Bureau’s authority to reinstate noncompetitive leases issued under the MLA. The IRA did not similarly rescind the BLM’s authority to reinstate a noncompetitive lease issued under the Mineral Leasing Act for Acquired Lands.
BLM offices will use the updated Termination Notice Template in Attachment 3 when notifying a lessee of a lease’s termination.
Class III Reinstatements
The IRA removed the BLM’s authority to issue Class III reinstatements.
This IM governs BLM procedure and organization and is not a rule, regulation, or other legally binding instrument, and the recommendations it contains may not apply to a particular situation, depending on case-specific facts and circumstances. Nothing in this IM is intended to modify or amend any Federal laws or regulations, nor create any rights or cause of action or trust obligation that any person or party may enforce through litigation or otherwise against the United States Government or any of its employees or officers. This IM is not legally enforceable. To the extent that there is any inconsistency between the provisions of this IM and any Federal regulations or laws, the regulations or laws will control.
 According to 30 U.S.C. § 188(e), the royalty rate must be “at a rate of not less than 20 percent computed on a sliding scale based upon the average production per well per day, at a rate which shall be not less than 4 percentage points greater than the competitive royalty schedule then in force and used for royalty determination for competitive leases issued pursuant to such section as determined by the Secretary.” For example, if the BLM reinstates a terminated competitive lease with a royalty rate of 18.75 percent, then the reinstated competitive lease will have a 22.75 percent royalty rate.
There will be a minimal increase in demand on staff time with the implementation of this policy due to additional resource analysis and NFLSS data entry. The magnitude of increase will depend on the number of EOIs received; however, the BLM expects the number of EOIs received from the public to decrease with the advent of the EOI filing fee. All BLM offices have the capacity to accomplish the required goals of this policy.
The BLM developed this policy in response to the IRA becoming law on August 16, 2022. The legal requirements described in this IM reflect those required by law, as reflected in the IRA.
This IM supplements existing policy; and supersedes any conflicting guidance or directive found in Handbook H-3120-1, Competitive Leasing (Rel. 3-338, 2/18/2013) and in the expired BLM IM 2014-004.
If you have questions or concerns regarding this IM, please contact Nicholas Douglas, at 970-256-4944. For program questions, your staff may contact Lonny Bagley, Acting Chief, Division of Fluid Minerals, (HQ-310) at firstname.lastname@example.org or 307-622-6956; or Peter Cowan, Senior Mineral Leasing Specialist (HQ-310) at email@example.com or 720-838-1641.
This policy was coordinated with DOI Office of the Solicitor, and the BLM Headquarters Energy, Minerals, and Realty Management Directorate (HQ-300), Division of Fluid Minerals (HQ-310), and State Offices.