Washington, D.C. — A Center for American Progress review of oil and gas leasing terms on federal, state, and private lands found that the Bureau of Land Management’s, or BLM’s, royalty rate for oil and gas drilling on taxpayer-owned public lands is in many cases 50 percent lower than the royalty rates being charged by private landowners. The federal government’s royalty rate is also half what the U.S.’s largest energy-producing state, Texas, charges companies that drill on state-owned lands.
The CAP review adds to a growing body of evidence that the federal government’s royalty, rental, bidding, and bonding policies are failing to adequately protect the financial interests of U.S. taxpayers and energy-producing states. A report released yesterday by the Center for Western Priorities estimates that outdated royalty policies are responsible for up to $730 million per year in lost revenue for taxpayers and energy-producing states.
“The oil and gas industry and its technologies have grown by leaps and bounds in the past century, but the federal government’s royalty policies are frozen in the 1920s,” said Nicole Gentile, the Director of Campaigns for the Public Lands Project at the Center for American Progress. “From a business perspective, the shareholders of America’s public lands—U.S. taxpayers—aren’t receiving a fair share from the development of their resources.”
On April 17, Secretary of the Interior Sally Jewell announced a top-to-bottom review of the BLM’s oil and gas revenue policies and launched an Advanced Notice of Proposed Rulemaking, or ANPR, to solicit feedback on potential changes to the agency’s royalty, rental, bonus bid, and bonding rules. The public comment period for the ANPR closes today.
The private oil and gas leases uncovered and examined by CAP require that companies pay the landowner 25 percent of the value of the resource extracted. The Bureau of Land Management collects only a 12.5 percent royalty for drilling on national forests and other public lands, while the Bureau of Ocean Energy Management collects an 18.75 percent royalty for offshore drilling in the federal Outer Continental Shelf.
The CAP review identified several other deficiencies in the federal government’s oil and gas policies. The federal government’s bonding requirements—or insurance to protect taxpayers from the costs of cleaning up old and abandoned wells—haven’t been updated in more than 50 years. If adjusted for inflation, the bonding requirements would be 800 to 1,000 percent higher today. Further, companies are only required to pay $1.50 per acre in rental fees to maintain their right to drill for up to 10 years; this compares unfavorably with the state of Texas, which increases its rental fee to $2,500 per acre in the third year of a lease to incentivize early production.
The CAP issue brief notes that it is not only U.S. taxpayers who are being shortchanged by current policies; the state in which the development is occurring receive about half of the revenue from oil and gas extraction on public land, which funds schools, infrastructure, and other priorities.
Click here to read “Federal Oil and Gas Royalty and Revenue Reform” By Nicole Gentile
For more information on this topic or to speak with an expert, contact Tom Caiazza at [email protected] or 202.481.7141.