Rigged: Deadbeat tenants

Industry loves to complain about regulatory burdens and “red tape” on federal public lands. The reality, however, is that these same companies are systematically exploiting loopholes, subsidies and other special advantages that they enjoy. The system is actually rigged in such a way that allows companies to lease millions of acres of public lands for free, cheating taxpayers out of untold revenues and locking out other public lands users in the process.

Loopholes. Loopholes everywhere.

Normally, to maintain a federal lease, companies have to do one of two things – drill and generate royalty payments or pay rent annually. This requirement ensures that taxpayers are always gaining some revenue and compensation for use of their publicly owned lands and resources.

But through two major loopholes – lease “suspensions” and lease “reinstatements” – oil and gas companies have found clever ways around this requirement. The truth is that companies can squat on federal leases for months, years and even decades, without paying a single dime to taxpayers.

Lease Suspensions – Rent-Free Leasing

Industry uses an obscure loophole called a lease “suspension” to keep oil and gas leases alive well after they would have normally expired – which then relieves them of the obligation to make any payments. In theory, the Bureau of Land Management (the agency that administers federal lands leases) is only supposed to grant suspensions in “extraordinary” circumstances and “in the interest of conservation of natural resources.” In practice, BLM liberally grants suspensions for a wide variety of questionable and impermissible reasons.

For example, when companies file drilling permits just weeks before a lease expires, the BLM typically doesn’t have the time to determine if an endangered species might be harmed or a river might be polluted. Consequently, the BLM often rubber-stamps a suspension “in the interest of conservation.” Of course, companies know that BLM cannot process these applications in a matter of weeks. But that’s why they file permit applications at the 11th hour – it’s a surefire way to extend the life of a federal lease beyond its normal 10-year term, and without any obligation to make rental payments.

Through similar loopholes, oil and gas companies have locked up literally millions of acres of public lands in rent-free leases. At last count, more than 3 million acres of federal leased lands were suspended, over 10% of all lands under lease. These are lands that could have been devoted to other income-generating uses, like hunting, fishing or alternative forms of energy development. This also cheats taxpayers out of tens of millions of dollars. As of December 2015, The Wilderness Society estimated that leases under suspension at that time had cost taxpayers $80 million in lost rental payments alone (not considering lost production royalties or revenue from other, foregone activities).

Suspensions can lock up lands for months, years, and even decades. A third of leases currently under suspension began their suspensions before 1995, more than 20 years ago. Likewise, a quarter of currently suspended leases entered suspension before 2010.


Lease Reinstatements – Zombie Leases

Another major loophole is the so-called lease “reinstatement.” Through this process, companies can default on their rental payments and then simply reclaim those leases months or more than a year later.

Under current laws, BLM will grant a reinstatement for almost any reason whatsoever. This opens up a broad loophole for abuse. If a company is losing interest in a lease, or if oil and gas prices aren’t what a company hoped it would be, it can simply stop making its rental payments and watch the property. If someone strikes oil nearby, or if prices come back up, it files for a lease reinstatement to get the lease back. Since 2000, BLM has reinstated more than a thousand leases, covering more than a million acres of federal lands. These are lands that, had BLM allowed the leases to expire, could have been devoted to other uses. Instead, through the reinstatement loophole, BLM is allowing companies to speculate on public lands for free.

                 The Deadbeat Tenants

Of course, in the real world, a landlord would never excuse a missed rental payment, and the tenant would be evicted. And a lender would never allow anyone to “suspend” their mortgage payments. So why is the BLM allowing oil and gas companies to do this? And why are taxpayers subsidizing it? We are allowing the oil and gas industry to be deadbeat tenants of our public lands, in yet another example of how the industry has “rigged” the system. 

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