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The Bureau of Land Management (BLM) today announced a congressionally mandated inflation adjustment to civil penalties that companies must pay for violating regulations governing oil and gas operations on Federal and Indian lands. The adjustments, issued as an interim final rule, are required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Act), which directs all Federal agencies to make inflation adjustments to the civil monetary penalties included in their regulations by July 1, 2016.

The purpose of these adjustments, as stated in the legislation, is to maintain the deterrent effect of civil penalties.  The Act allows for an initial “catch-up” adjustment that calculates the inflation from the time the penalty was established to today; thereafter, adjustments are required annually.  The Act also requires that the BLM publish the adjustment as an interim final rule, and that the increases take effect by August 1, 2016, barring the receipt of substantive public comment.

Having reviewed its existing regulations, the BLM determined that only the civil penalties for oil and gas were subject to the Act.  Thus the rule released today increases those penalties as required by the Act.  The calculated adjustment is calculated based on the percentage change in the Consumer Price Index for all Urban Consumers from October 1987, the year those penalties were established, and October 2015.  The Act did not give the BLM discretion in the form or manner of making the adjustments.

The civil monetary penalties now align more closely with the actual costs of drilling an oil and gas well today.  However, this adjustment will not pose a significant economic impact because individuals and companies can avoid these increased penalties by complying with applicable oil and gas regulations.  Moreover, these increases are small in the context of the overall value of annual production from all Federal and Indian oil and gas leases.