In the USA, private ownership of oil and gas resources is the norm. In many states, the mineral estate is distinct from the surface estate, which means that the right to drill for and exploit hydrocarbons may be sold, transferred or inherited separately from the land itself. Large oil and gas-producing states such as Texas, Oklahoma, Louisiana, Wyoming and Alaska recognise separate surface and mineral estates. Because the mineral estate is dominant, the law grants mineral owners a right of reasonable access to the land to develop underground resources.

Although there are no restrictions on private ownership of oil, gas and other minerals, the federal government – through the Bureau of Land Management (BLM) – owns more than 700,000 acres of minerals. The BLM leases some of that acreage to private oil and gas companies for development.

The Department of the Interior regulates oil and gas production on federal and some Native American tribal lands, as well as offshore operations on the Outer Continental Shelf. The federal Environmental Protection Agency (EPA) enforces air and water quality regulations that affect oil and gas production. The Bureau of Safety and Environmental Enforcement enforces environmental regulations applicable to offshore drilling in federal waters. The Federal Energy Regulatory Commission (FERC) regulates the interstate transportation of natural gas and oil through pipelines.

State agencies also have regulatory responsibilities for oil and gas exploration. In Texas, for example, the Railroad Commission (initially created to oversee railroads) regulates the drilling, operation and plugging of oil and gas wells, and oil and natural gas pipelines within the state and remediation of abandoned well sites. The Texas Commission on Environmental Quality enforces state regulations related to air and water quality.

In the USA, oil and gas companies are privately owned.

Upstream

At the federal level, the Mineral Leasing Act of 1920 governs the leasing and development of oil and gas resources on federal lands, and the Outer Continental Shelf Lands Act regulates offshore development on the Outer Continental Shelf. The National Environmental Policy Act requires federal agencies to assess the environmental impacts of oil and gas leases on federal land. The Federal Oil and Gas Royalty Management Act governs lease and royalty agreements for development on federal lands. State law generally governs the sale, transfer and inheritance of mineral ownership on private land. States also regulate oil and gas development on private land by issuing drilling permits, regulating oil and gas wells, and balancing the rights of different operators operating in the same area.

Midstream

At the federal level, the Natural Gas Act of 1938 gives FERC the authority to regulate the interstate transportation of natural gas, including approving pipeline construction and setting rates. The Interstate Commerce Act grants FERC authority to regulate rates for interstate oil pipelines. The Department of Transportation (DOT) regulates pipeline safety. At the state level, state authorities regulate pipeline capacity and intrastate transportation. Some states (such as Texas) also require gas-gathering companies to purchase natural gas from all producers in a non-discriminatory manner.

Downstream

The Energy Policy and Conservation Act established the Strategic Petroleum Reserve, a federal emergency stockpile of oil, and sets energy efficiency standards. The Clean Air Act mandates fuel standards. The Petroleum Marketing Practices Act regulates petroleum supply contracts and the relationship between refiners and franchised gasoline retailers. States generally regulate retail gasoline and fuel oil sales as well as public utilities, and states have their own regulatory systems for environmental quality.

Private investment in the exploration and production of oil and gas includes working interests, royalty interests and mineral rights. Working interest owners share in the revenue and expenses of oil and gas production, bearing operational risks such as the cost of drilling and production. Royalty interest owners receive a percentage of the revenue from production without bearing any operational costs or risks. For that reason, royalty interests typically offer lower returns than working interests. Owners of mineral rights retain control over the subsurface estate and may grant leases to oil and gas companies in return for royalties. Companies and individuals may own these interests through a variety of business and investment entities, including corporations, limited liability companies, partnerships and trusts.

For privately owned minerals, oil and gas companies negotiate lease terms directly with the mineral estate owner. Those leases are subject to the law of the state in which the resources are located. For minerals located on federal land or offshore territory, the BLM or the Bureau of Ocean Energy Management hold competitive auctions for leases.

The financial terms of oil and gas leases normally include:

• a one-time bonus payment upon signing based on the acreage of the lease; and
• a royalty calculated as a share of revenues that ranges from the traditional rate of 12.5% up to 25% or more for highly competitive markets.

The terms of BLM leases include annual per-acre payments and a minimum royalty of 16.67%.

Upstream producers pay four primary types of taxes. First, they pay federal and state income tax on profits. The federal corporate tax rate is currently about 21%. Second, they pay state severance taxes based on the volume of production. In Texas, the severance tax rate is 4.6% of the market value of oil and 7.5% of the market value of gas. Third, producers pay state property taxes based on the estimated value of their mineral rights, equipment, and infrastructure. Fourth, producers pay a federal environmental tax based on the amount of oil and gas they extract. The current rate is about USD0.254 per barrel.

The USA does not have a national oil or gas company.

In the USA, state authorities typically regulate permitting, well spacing and density, air and groundwater pollution, production and reporting, plugging and abandonment requirements, and royalty payments for state-owned land. The Texas Railroad Commission (TRC), for example, issues drilling permits, determines the allocation of oil and gas among well operators in the same area, and makes permitting and spacing requirements. The TRC also imposes recording requirements on producers. The Texas Commission on Environmental Quality enforces air and water pollution standards.

Local governments have authority over zoning, traffic, siting and setback requirements. Because most oil and gas production takes place in rural areas, those rules are usually less important than state regulation.

Drilling on private land is primarily regulated at the state level. Regulatory bodies such as the TRC or California’s Geologic Energy Management Division issue drilling permits that specify the location, depth and planned drilling methods for a well. States also regulate casing and cementing requirements to ensure well integrity and protect aquifers. Operators must comply with ongoing reporting requirements and often post bonds to cover the cost of plugging and abandonment after a well is decommissioned. The federal government imposes similar requirements on wells drilled on federal land or offshore.

The key terms of private oil and gas leases include:

• the primary and secondary terms;
• the upfront payment;
• the royalty rate; and
• shut-in royalties and other protections for landowners.

The primary term is the first phase of the lease, under which an oil company typically has three to five years to begin drilling. If the oil company does not begin producing during that period, the lease expires. The secondary term often continues if the lease is producing in paying quantities – meaning that the wells produce more income than the cost of extraction. As noted in the foregoing, leases often include an upfront payment calculated on a per-acre basis and a royalty rate that ranges from 12.5% to 25% or more. Shut-in royalties are a protection for landowners that require the oil company to pay royalties even if the well is not producing on a temporary basis. Of course, parties are free to modify the terms of an oil and gas lease at will to provide greater or lesser protections for the lessor and lessee.

Transfers of interests in private oil and gas leases and assets are normally governed by state real property and contract law. Transfers of lease interests on federal land or federal waters are controlled by the BLM or the Bureau of Ocean Energy Management.

States frequently set monthly or daily limits on production from private oil and gas wells, impose allocation requirements and regulate production to prevent waste. The federal government sets similar rules for federal land and offshore production. The USA is not a member of the Organization of the Petroleum Exporting Countries (OPEC) and does not adhere to OPEC production quotas.

In the USA, the vast majority of pipelines, refineries and storage facilities are privately owned. The US government owns very limited pipeline and storage infrastructure to support the Strategic Petroleum Reserve, the US government’s emergency supply of oil, which is stored in salt caverns along the Gulf Coast. Despite being privately owned, pipelines are subject to common carrier regulations and generally must transport oil and gas based on a published tariff on a non-discriminatory basis.

There are no national monopolies involved in any downstream operations in the USA.

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The USA does not have a national oil or gas company.

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Pipeline operators that are common carriers (meaning that they must transport oil and gas for the public under a published tariff and on a non-discriminatory basis) have condemnation and eminent domain rights. That means they have the legal right to take private property, generally in the form of an easement, for an underground pipeline. To exercise those rights, the pipeline operator must show necessity, pay market-based compensation and negotiate protections to protect the landowner. Landowners typically have limited rights to object to pipeline easements.

FERC regulates the rates and practices of interstate oil and gas pipelines. The DOT regulates pipeline safety, and the EPA has jurisdiction over pollution and waste management. States regulate intrastate pipeline transportation and safety. For example, in Texas, the Railroad Commission regulates rates and the Texas Commission on Environmental Quality oversees pollution and contamination.

Pipelines are typically common carriers and must transport oil and gas for the public according to a published tariff, and in a non-discriminatory manner. Refineries and storage facilities, however, rely on private contracts with upstream producers, and their prices and practices are not subject to common carrier regulation. FERC and federal antitrust laws restrict the bundling of services by pipelines. For example, FERC Order No 636 (1992) required natural gas pipelines to unbundle their sales services.

The federal government regulates imports and exports of oil and gas into the US market, but there are very few restrictions on sales within the USA. Under the interstate commerce clause of the US Constitution, states are not permitted to discriminate against out-of-state sales. Retail gasoline and diesel sales are taxed by the federal government, and the transportation and sale of petroleum and natural gas is heavily regulated at the federal and state level.

Since legislation authorising crude oil exports was enacted in 2015, a licence is generally not required for most crude oil exports. The Department of Energy, however, must authorise exports and imports of natural gas under the Natural Gas Act of 1938. However, oil and gas exports and imports involving certain countries such as Iran, Venezuela, and Russia, are prohibited or restricted by sanctions applicable to those countries.

Midstream and downstream assets are primarily transferred in private market transactions. Natural gas pipeline systems are subject to federal regulatory approval by FERC. Oil pipeline transfers do not require federal approval but typically require state permits.

Foreign investment in the oil and gas sector is not normally restricted. However, the Mineral Lands Leasing Act of 1920 limits foreign acquisition of leases or rights-of-way on federal lands, including those for oil, gas and pipelines. Certain foreign investments can trigger review by the Committee on Foreign Investment in the USA for national security concerns, and the Office of Foreign Assets Control can prohibit transactions based on US sanctions. Foreign investors generally have the same rights and legal protections as their domestic counterparts, including Fifth Amendment protection against “takings” and access to US courts to enforce their rights.

The USA has imposed oil and gas-related sanctions on Iran, Russia and Venezuela. US sanctions on Iran have targeted nearly 100 individuals, entities and vessels that participate in Iran’s petroleum industry, as well as Chinese entities involved in shipping Iranian oil. The USA has also sanctioned “shadow fleet” vessels used for covert shipments of Iranian oil. US sanctions on Russia focus on major Russian producers such as Gazprom Heft and Surgutneftegas, along with “shadow fleet” vessels used to transport Russian oil. US sanctions on Venezuela include direct sanctions as well as a 25% tariff on goods imported from any country that purchases Venezuelan oil.

The oil and gas industry is heavily regulated. The EPA oversees environmental regulations related to air quality, water quality and waste management under various federal statutes. FERC regulates the interstate transmission of electricity, natural gas and oil, including interstate pipelines and liquified natural gas (LNG) terminals. The Department of the Interior manages oil and gas development on federal and Indian lands, as well as offshore on the Outer Continental Shelf. The DOT oversees pipeline safety. State agencies also play a key role. In Texas, the Railroad Commission regulates the exploration, production and transportation of oil and natural gas within Texas, and the Texas Commission on Environmental Quality regulates air and water quality.

To commence a major hydrocarbon project, companies must satisfy extensive environmental obligations, primarily by conducting an environmental impact assessment and securing multiple permits from state and federal regulators. Permits may be needed for air, water and waste management impacts. In some cases, bonds or other security are required for future decommissioning requirements. For projects on public land, additional permits and leases are required.

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The Bureau of Safety and Environmental Enforcement, the Bureau of Ocean Energy Management, the EPA and the US Coast Guard regulate offshore oil and gas activity based on worker safety and environmental protection.

In 2023 and 2024, the EPA announced final rules designed to reduce methane emissions from oil and gas operations as part of an overall greenhouse gas reduction programme. The new rules include a waste emissions charge on methane emissions. The EPA also implements programmes to reduce conventional air pollutants from power plants, including those that utilise oil and gas.

Most oil and gas regulation is at the federal or state level. Although local governments traditionally have authority over certain land use requirements and zoning, localities have little authority over oil and gas development, and some states have laws that specifically pre-empt local regulation of oil and gas.

The Trump administration and Congress have rolled back incentives for transitioning to alternative energy sources such as wind and solar, focusing more heavily on traditional oil and gas. A similar trend is taking place at the state level, with some states (such as Texas) providing incentives for traditional oil and gas as opposed to alternative energy sources.

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The current trend at the federal and state levels is to focus on energy dominance through traditional oil and gas. Energy transition has been de-emphasised and is in the process of being defunded.

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