Reconsidering Helium Production on Federal Lands Amid Privatization of Federal Helium Reserve

by Stoel Rives LLP
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On Wednesday the Bureau of Land Management (BLM) will auction helium stored in its Cliffside Field underground storage facility in west Texas (aka the Federal Helium Reserve).  This annual auction under the Helium Stewardship Act of 2013 is part of a privatization effort that began back in 1996 and will culminate with the BLM divesting itself of that facility by 2021.  At the same time, concerns about helium supply are again rising, as production from Qatar, which accounts for 25% of global helium supply, was interrupted last month by an economic boycott in the region.  These events are prompting Congress to consider changing the nearly century-old treatment of helium under the Mineral Leasing Act of 1920.

International affairs have long motivated the federal government’s involvement in the helium industry.  When the United States entered World War I in 1917, the federal government began developing helium extraction plants in Texas to produce this non-flammable, lighter-than-air alternative to hydrogen.  After the war, the Mineral Leasing Act expressly reserved to the federal government the right to extract helium from gas produced from federal lands. See 30 U.S.C. § 181.  By 1945 the U.S. Bureau of Mines was storing helium by injecting it at Cliffside into the depleted Bush Dome reservoir.  Military and industrial uses of helium increased after World War II, and Congress enacted the Helium Act Amendments of 1960 to encourage private parties to extract helium from gas produced on non-federal lands and sell it to the federal government, which then stored it underground at Cliffside.

Due to the Mineral Leasing Act’s helium reservation, a federal oil and gas lessee desiring to sell helium from federal lands must enter into a separate helium sales agreement with the BLM. See 43 C.F.R. Part 16; 43 C.F.R. § 3103.3-1(d).  The BLM currently has six such agreements under which about 1.3 Bcf of helium is produced each year.  The federal government receives compensation akin to a 1/12th royalty on refined helium sold by lessees as a liquid and a 1/8th royalty on crude helium sold as a gas.

Last month the House Subcommittee on Energy and Mineral Resources held a hearing on a discussion draft of the “Helium Extraction Act of 2017.” According to the hearing memo, the bill would respond to the federal government’s privatization efforts, recent market disruptions, and supply uncertainty by amending “the Mineral Leasing Act to allow helium extraction from gas on federal lands under the same lease terms as oil and gas.” However, the draft bill simply allows helium production to maintain a federal oil and gas lease beyond its primary term.  While that may be a helpful step towards encouraging investment in helium production from non-economic methane reservoirs on federal lands, it would not eliminate the need for a separate helium sales agreement on top of a federal oil and gas lease.  Moreover, this bill would not address other related issues (e.g., ensuring the federal government’s helium supply post-2021, perhaps though an “in-kind” helium royalty on production from federal lands).  If a legislative solution proves to be unattainable, the BLM may be able to address these issues administratively by utilizing existing non-Mineral Leasing Act authority to lease helium production rights.  See 50 U.S.C. § 167a(a)(2).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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