PERC’s Shawn Regan argues in favor of allowing environmental groups to bid in federal auctions for oil and gas development leases, a way to help ensure that use of federal lands reflects both the value of energy resource exploitation and the value of protecting those lands from development. The theory is that if environmental groups highly value the opportunity to prevent oil and gas development on a piece of federal land, they’ll put in a high bid. The project would only get leased for development if a resource developer submitted an even higher bid. Let the market decide!
I like the idea, a little more competition won’t hurt, but a few issues need cleaning up first.
Regan said current rules keep environmental groups from participating because of requirements that leaseholders develop the minerals or lose their lease. It isn’t clear from his short piece whether there are specific exclusions in Bureau of Land Management leases or in the auction rules that explicitly bar such participation, or whether he’s referring to relatively standard language in oil and gas leases under which the lease expires if the company doesn’t develop the resource within a set period. Typically, a mineral rights owner leases the development rights because they want the resources developed and the associated royalty payments. When a company holding the lease does not develop the property, the mineral owner wants to be able to shift the development rights to someone who will. If this kind of leasing restriction is the issue, then the leases may need to be rewritten to allow the leaseholder to hold the development rights by use of the environmental values. (Similar to holding water rights to protect in-stream flows rather than by consumption.)
A related issues comes up: If an oil and gas company secures the lease through auction, it has a few years to begin development and so long as development begins in time typically the lease continues for as long as the company continues operations. Operations may last 20 or 25 years, possibly longer, but not forever. So how long should a lease last if an environmental group wants to hold development rights by use of its environmental values?
NOTE: Regan’s piece was also posted at Grist. See also Regan’s earlier piece for PERC Reports, and our earlier comment here on that piece highlighting the possibility of an oil developer and environmental group working together on bidding and resource development.