Protecting Communities from Energy Development Impacts
What are states doing?
Arizona is not a major oil-producing state, ranking 31st in the nation in 2023 with 6,000 barrels of oil produced. Arizona is not a major natural gas-producing state either, ranking 31st in the nation in 2023 with 29 million cubic feet produced in 2023. Arizona does not have a statewide setback requirement for oil and gas wells, or any laws or rules in place to reduce methane emissions from oil and gas operations.
Colorado was the fourth-highest oil producing state in the nation in 2023 with 165,714,000 barrels of oil produced, and the eighth-highest natural gas-producing state in the nation in 2023, with 1,617,236 million cubic feet produced. Effective September 2024, Colorado adopted new regulations requiring a minimum setback distance of 2,000 feet from schools and day care facilities. A 2,000-foot setback is also in place for other residential buildings, but there are multiple ways for operators to get around it and obtain permission to drill as close as 500 feet from homes.
In 2021, Colorado finalized a rule requiring reductions in emissions of greenhouse gases, including methane, by oil and gas operators. The oil and gas industry must achieve a 60 percent reduction in methane emissions by 2030, and operators are required to use measurement technologies to verify reported emissions.
Idaho is not a major oil-producing state, ranking 30th in the nation in 2023 with 33,000 barrels of oil produced. Idaho is also not a major natural gas-producing state, ranking 26th in the nation with 2,359 million cubic feet produced in 2023. In Idaho, wells must be set back at least 300 feet from occupied structures, though this may be reduced to 100 feet with the permission of the structure’s owner. Idaho does not have laws or rules in place to reduce methane emissions from oil and gas operations.
Montana was the 13th-highest oil producing state in the nation in 2023 with 23,235,000 barrels of oil produced, and the 16th-highest natural gas-producing state in the nation in 2023 with 40,005 million cubic feet produced. Montana has no statewide setback requirements for oil and gas wells. Montana does not have laws or rules in place to reduce methane emissions from oil and gas operations.
Nevada is not a major oil-producing state, ranking 27th in the nation in 2023 with 211,000 barrels of oil produced. Nevada is also not a major natural gas-producing state, ranking 32nd in the nation with 4 million cubic feet produced in 2023. Nevada does not have a statewide setback requirement for oil and gas wells, or any laws or rules in place to reduce methane emissions from oil and gas operations.
New Mexico was the second-highest oil producing state in the nation in 2023 (after Texas) with 667,535,000 barrels of oil produced, and the fifth-highest natural gas-producing state in the nation in 2023 with 2,890,445 million cubic feet produced. New Mexico does not have a statewide setback requirement for oil and gas wells, leaving it to counties and municipalities. In 2021, New Mexico finalized a rule requiring oil and gas operators to capture 98 percent of waste methane by 2026 and prohibiting routine venting and flaring.
Utah was the ninth-highest oil producing state in the nation in 2023 with 56,196,000 barrels of oil produced, and the 13th-highest natural gas-producing state in the nation in 2023 with 274,678 million cubic feet produced. Utah does not have a statewide setback requirement for oil and gas wells, though some local governments have put their own in place. Utah does not have laws or rules in place to reduce methane emissions from oil and gas operations.
Wyoming was the eighth-highest oil producing state in the nation in 2023 with 97,235,000 barrels of oil produced, and the ninth-highest natural gas-producing state in the nation in 2023 with 918,923 million cubic feet produced. Wyoming’s minimum setback from occupied structures is 500 feet, though operators may seek a variance or the surface owner may grant a waiver allowing wells to be closer than 500 feet. Wyoming does not have laws or rules in place to reduce methane emissions from oil and gas operations.
Why is this important?
Every point in the oil and gas production process poses risks to communities, wildlife, and the environment. Spills, leaks, and emissions of oil, gas, and other toxic chemicals can have long-term health impacts for people nearby, and can contaminate water, air, and soil. To protect human health, some states require that oil and gas operations be set back a minimum distance from homes, schools, and other structures. To be protective, these setbacks must be a sufficient distance and must be strictly enforced. Unfortunately, in most states the minimum setbacks are not far enough to be protective, are easy for operators to get around, or both.
Emissions of methane from oil and gas production, transport, and storage are a significant contributor to climate change. While some states limit the amount of methane that can be vented or flared, few states require that oil and gas operators take steps to reduce their methane emissions.
Ensuring a Fair Return to Taxpayers
What are states doing?
Arizona has an oil and gas royalty rate of 12.5 percent, matching what the federal rate was prior to the passage of the Inflation Reduction Act in 2022 but lower than the current federal rate of 16.67 percent.
Arizona requires a bond of $10,000 for wells up to 10,000 feet deep, $20,000 for wells more than 10,000 feet, or a blanket bond of $25,000 for up to ten wells, $50,000 for more than ten but fewer than 50 wells, or $250,000 for 50 or more wells.
In Colorado, the oil and gas royalty rate is 20 percent of the revenue from oil and gas produced, greater than the federal royalty rate of 16.67 percent.
In 2022, Colorado updated its financial assurance requirements. Operators must submit a financial assurance plan for approval by the Energy and Carbon Management Commission. The updated bond amounts required are complex and depend on the operator’s production levels and the type and number of wells, resulting in essentially a custom financial assurance plan for each operator that is intended to ensure that the financial assurance required reflects that operator’s portfolio in the state. “Blanket” bonds at varying tiers are calculated per well, rather than a single amount per tier.
Idaho has an oil and gas royalty rate of 12.5 percent, matching what the federal rate was prior to the passage of the Inflation Reduction Act in 2022 but lower than the current federal rate of 16.67 percent.
For an individual well, Idaho requires a bond of $10,000 plus $1 per foot of planned well length. Idaho also allows blanket bonds of $50,000 for up to ten wells, $100,000 for 11 to 30 wells, or $150,000 for more than 30 wells. Inactive wells (wells that are not producing but have not been plugged, and are at greater risk of becoming pollution sources or being abandoned) may not be covered by a blanket bond.
Montana’s oil and gas royalty rate is 16.67 percent, matching the federal rate.
Montana requires a bond of $1,500 for a well 2,000 feet deep or less, $5,000 for a well more than 2,000 feet and less than 3,501 feet deep, and $10,000 for a well 3,501 feet or deeper. Operators of multiple wells may provide a blanket bond of $50,000 for any number of wells.
Nevada has an oil and gas royalty rate of 12.5 percent, matching what the federal rate was prior to the passage of the Inflation Reduction Act in 2022 but lower than the current federal rate of 16.67 percent.
Nevada requires a bond of $10,000 for an individual well, or a blanket bond of $50,000 for any number of wells.
In New Mexico, the oil and gas maximum royalty rate is 20 percent of the revenue from oil and gas produced, greater than the federal royalty rate of 16.67 percent. A bill to increase the rate to one-fourth of the revenue from oil and gas produced, to match that of neighboring Texas, failed in the 2024 legislative session.
New Mexico requires a bond of $25,000 plus $2 feet per foot of planned depth for an individual well. New Mexico also allows blanket bonds of $50,000 for up to 10 wells, $75,000 for 11 to 50 wells, $125,000 for 51 to 100 wells, and $250,000 for more than 100 wells. For inactive wells, the individual well bond is the same, but the blanket bonds are higher: $150,000 for up to five wells, $300,000 for six to 10 wells, $500,000 for 11 to 25 wells, and $1 million for more than 25 wells.
Utah’s oil and gas royalty rate is 16.67 percent, matching the federal rate.
For individual wells, Utah’s bond amounts are $1,500 for a well less than 1,000 feet deep, $15,000 for a well 1,000 to 3,000 feet deep, $30,000 for a well 3,000 to 10,000 feet, and $60,000 for a well more than 10,000 feet deep. Utah allows blanket bonds for more than one well of $15,000 for wells less than 1,000 feet deep, and $120,000 for wells more than 1,000 feet deep. Operators may apply for a variance from these requirements for specific wells.
Wyoming’s oil and gas royalty rate is 16.67 percent, matching the federal rate.
Wyoming requires a bond of $10 per foot of planned depth for an individual well, or a blanket bond of $100,000. For inactive wells, the bond amount may be increased by up to $10 per foot of depth.
Why is this important?
Natural resources found on federal or state lands, such as oil and gas, minerals, timber, or forage for livestock, are managed by the federal or state government on behalf of taxpayers. In many cases, companies pay a royalty to compensate the public for the resources extracted. In other cases, however, no royalty is charged and companies keep all of the profit for themselves without compensating the public.
At the federal level, the royalty rate on oil and gas remained at 12.5 percent from the passage of the Mineral Leasing Act in 1920 until the passage of the Inflation Reduction Act in 2022, which increased the royalty rate for the first time to 16.67 percent. There is no federal royalty required for hardrock minerals. States can set their own royalty rates for oil, gas, and other minerals extracted from state lands to ensure taxpayers are being compensated for these resources.
Bonds are intended to cover the cost of potential damage companies may cause to the land. At the federal level, minimum bond amounts have been inadequate for decades, failing to cover the actual costs of damage and clean-up and leaving taxpayers to cover the costs not covered by bonds. States have the opportunity to do better by setting minimum bond amounts that reflect actual costs and won’t leave taxpayers holding the bag.
Final Scores
