Little-Known Method To Acquire Oil And Gas Leases Increases

May 31, 2019

Number of noncompetitive leases issued over the past decade
Credit Center for American Progress

The Bureau of Land Management (BLM) has two methods to auction off public land for oil and gas development. The first are the quarterly auctions where the highest bidder takes home the lease. The second is less well-known, called noncompetitive leasing. The Center for American Progress (CAP), a liberal think-tank, studied leases obtained this way through BLM's LR2000 (Legacy Rehost System 2000) database and found the method is taking off under the Trump Administration.

When land up for sale in the normal auction isn't bought off, it comes available through noncompetitive leasing. Perhaps it was less desirable, so instead of being bid on, it's sold on a first-come, first serve basis at low prices. In 2018, the BLM issued more noncompetitive leases than any other year in the past decade. Over the past ten years, nearly a quarter of BLM leases were acquired through the noncompetitive method, according to CAP's analysis within the LR2000 system.

The report from CAP argued the secondary BLM method of leasing has loose ends. Unlike the normal auction process, no bonds or public process are required. They found these types of leases are terminated 25 percent more often than ones acquired in the competitive sale. Jenny Rowland-Shea, CAP senior policy analyst, said taxpayers also aren't getting as much as they could from the land.

Companies leasing noncompetitively over the past decade
Credit Center for American Progress

"That's one big concern is that it's really not giving to the taxpayer maybe what this land is worth," Rowland-Shea said, arguing land that wasn't bid on during the normal auction could be held over until its more valuable.

She said the average price of a parcel was too cheap in the noncompetitive process. With no bonus bid or fees, an acre can be sold for the rental price of $1.50. In the third quarter of the 2018 BLM lease sale, the average price of an acre was $202.

The country's leading user of the method is based out of Wyoming: Kirkwood Companies. The CAP report combines their oil and gas and exploration business, which boosts their numbers. Steve Degenfelder, spokesman for Kirkwood Oil and Gas, said the method allows the BLM to get something back for land that no one else wanted. Plus, buying it cheap allows resources to be used elsewhere.

"We're trying to get acreage as cheap as we can and build a geologic prospect around it in hopes of advancing the acreages value," Degenfelder said.

He added the increase in noncompetitive leases was likely due to the general rise in oil and gas leasing in the country in recent years. Degenfelder said that didn’t start under President Trump either, but Obama.

Wyoming is behind only Nevada in the most BLM land leased this way.