The People of America's Oil and Natural Gas Indusry

BLM Rule Could Impact Production, Revenues to Governments

Reid Porter

Reid Porter
Posted February 23, 2017

When the U.S. Senate returns to work, repealing the Bureau of Land Management’s “venting and flaring rule” should be a top priority. The redundant and technically flawed rule, which went into effect last month, could negatively impact production – some say it already has. The House has voted for repeal under the Congressional Review Act (CRA), and the Senate should follow the House’s lead.

BLM lacks statutory authority and expertise to regulate air quality. That authority belongs to EPA and the states, and it is being exercised. Meanwhile, EPA’s draft 2017 inventory of greenhouse gases, out last week, shows that methane emissions from natural gas systems are down 18.6 percent since 1990, while emissions from petroleum systems are down 28.8 percent. The rule simply isn’t needed – and its continued implementation could adversely affect production.

Analysis by Environmental Resources Management (ERM) found that the added cost of compliance with BLM’s rule could result in up to 40 percent of wells on federal lands being shut-in permanently, because they would be uneconomical to continue operating. Based on 2016 royalties reported by the Office of Natural Resources Revenue, even a 1 percent loss of royalties would result in lost federal revenues of more than $14 million – far more than the $3 million to $10 million in revenue savings BLM cites in support of its rule. ERM:

Costs of complying with the proposed BLM rule at full implementation in year 2019 were estimated to exceed $5.00 per barrel for as many as 40 percent of the leases. Although it is not possible to calculate the shut-in price for each lease with the available data, this analysis infers that a significant fraction of the leases are at risk for shut-in taking into account the incremental costs of compliance. … Shutting-in wells could have significant consequences on royalty revenue for the Federal government and State and local governments, in addition to job loss and the economic viability of operators.

The rule already is having effect in some western states. E&E News reports:

“The overall economic impacts are already being felt,” said Christopher Guith, senior vice president for policy at the U.S. Chamber of Commerce, regarding the methane rule. … In Colorado's Rio Blanco County, where the federal government owns most of the land, officials say the amount of money it would take to retrofit the county's wells to bring them into compliance far outweighs the revenue BLM expects to collect.

More from E&E:

Rio Blanco County Commissioner Shawn Bolton estimated that Rio Blanco, where 85 percent of revenue comes from oil and gas in some way, has experienced a nearly 30 percent revenue drop due to market conditions that have suppressed production. BLM's rule could be another punch to the gut, Bolton said.

During a conference call with reporters, Colorado Petroleum Council Executive Director Tracee Bentley said the BLM rule conflicts with existing state regulations. Energy companies in the state operate under some of the most stringent rules in the country, Bentley said, adding that the duplicative BLM rule will negatively impact production on federal lands:

“Less production hurts taxpayers – reducing royalty revenues as operators are forced to reduce production, if not stop altogether, in order to meet added limitations. … BLM could do more to help the environment, consumers, manufacturers and the industry by streamlining permitting and approving infrastructure, which would, in turn, promote greater methane capture.”

Carla Sonntag of the New Mexico Business Coalition recently told reporters that existing natural gas wells in the northwestern part of the state could be shut down because of the BLM rule:

“It doesn’t make economic sense and so the operators are now looking at shutting down these wells. New Mexico can’t afford that. … [Energy companies] have no interest in losing any part of the natural gas they’re producing. New Mexico needs these wells operating and it would be detrimental to our people to have them shut down.”

The Senate should finish Congress’ repeal of BLM’s duplicative rule and send the measure to President Trump for signing. As Bentley suggests above, streamlined federal permitting and approvals for needed infrastructure would support safe and responsible production on federal lands, while capturing as much methane as possible for delivery to customers – bringing in more revenue to government.

ABOUT THE AUTHOR

Reid Porter is a spokesman for the American Petroleum Institute. Before joining API, he worked as Account Supervisor at Edelman. Porter double majored in English Literature and the Spanish language at Middlebury College in Vermont. He enjoys traveling, cheering for the Green Bay Packers, soccer, rereading Hemingway novels and spending time with family.