Oil, gas groups sue to block US rule raising drilling fees on public lands

By Clark Mindock

(Reuters) - Fossil fuel groups have sued the U.S. Bureau of Land Management seeking to block a rule that will raise fees for oil and gas development on federal lands as a part of the U.S. government's broader effort to boost returns and address environmental harms stemming from drilling on public lands.

The Western Energy Alliance, a trade group representing oil and gas companies that drill on federal lands in the western U.S., and several other industry groups sued the agency, which comes under the Interior Department, in Wyoming federal court on Wednesday. They argued the rule will deter future oil and gas development, violating the government's obligation to promote such development.

The bureau declined to comment.

Under the new policy finalized last month, oil and gas companies will pay higher bonds to help ensure old oil and gas wells are plugged and restored, as well as increased lease rents, minimum auction bids and royalty rates for the fuels they extract. The rule, the first comprehensive update to federal onshore oil and gas leasing regulations in decades, will also limit drilling in sensitive wildlife and cultural areas.

Royalty rates will jump to 16.67% from 12.5%, while minimum lease bonds will increase to $150,000 from $10,000.

The groups said on Wednesday the changes would ultimately deter future development, effectively close available land to new leasing, and disproportionately impact small companies. These violate government obligations to promote oil and gas development under the Federal Land Policy and Management Act, the Mineral Leasing Act and other laws, they said.

They asked the court to vacate the rule, which they called "procedurally deficient, arbitrary and capricious, and contrary to law."

For years environmental and taxpayers groups have claimed that U.S. oil and gas development policy acted as a de facto subsidy for the fossil fuel industry while providing relatively little financial benefit for the public and causing significant environmental damage. Many of the changes formalized provisions of U.S. President Joe Biden's landmark climate change law, the 2022 Inflation Reduction Act.

About 10% of the nation's oil and gas comes from drilling on federally owned land.

The Interior Department said last month that the rule would discourage speculators and irresponsible actors, while increasing returns and helping to protect the environment.

(Reporting by Clark Mindock, Editing by Alexia Garamfalvi and Richard Chang)