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Oil groups boosted by cuts to US royalty rates during pandemic


Oil and natural gas companies that drill on US government-owned land are spending less for access after the Trump administration invoked the coronavirus crisis to slash the royalties they pay. 

About 300m barrels of the US’s 4.5bn barrels of oil production last year came from wells on federal lands, while another 700m barrels was pumped in offshore federal waters. Energy production yielded $12bn in direct revenue for Washington in fiscal 2019. 

The collapse in oil prices as the pandemic set in forced companies to suspend drilling and in some cases close wells. Seeking to keep wells from abandonment, the US interior department on April 21 declared that oil and gas operators could seek lower royalty rates. West Texas Intermediate crude had plunged below $0 a barrel for the first time the day before.

The government has since cut royalty rates on hundreds of properties, in many cases from 12.5 per cent of sales to 0.5 per cent, data show. 

While a small portion of federal government revenue, energy royalties are important to resource-rich states in the mountain west that receive about half of what Washington collects inside their borders. 

“These oil and gas royalties are an integral component of many western states’ budgets, and suspending their collection would have a direct negative effect on states,” the Western Governors’ Association wrote in early April to David Bernhardt, a former oil lobbyist who serves as interior secretary. 

In fiscal 2019, the federal government disbursed $2.2bn back to states, more than half to New Mexico — home to a portion of the prolific Permian Basin oilfield — and almost 30 per cent to Wyoming. 

Data from the Bureau of Land Management show the administration has slashed royalty rates on hundreds of thousands of acres including more than 100,000 acres in Wyoming and 95,000 acres in Utah. In Colorado, data as of late June showed that more relief requests had been rejected than granted. 

The data have trickled out on an antiquated BLM website and reflect requests for relief made months ago. In royalty-dependent New Mexico, the BLM has yet to release any data on company requests. Aaron Weiss, deputy director of the Center for Western Priorities, a public lands advocacy group, said the omission raised questions. 

“The most plausible explanation is that they are slow-playing the release of public data because they don’t want the public to know how much royalty relief they’re handing out, particularly in New Mexico,” he said. 

Royalty relief has been welcomed in Wyoming, a state also suffering from a decline in coal mining

Governor Mark Gordon, a Republican, “believes that a temporary reduction in royalty rates allowing energy and mining companies to survive is a far better outcome than zero royalties, which would be the result if production is stopped,” his spokesman said.

The BLM records identify federal leaseholders by name but do not disclose whether they have sold off operating rights to another company. Two large US oil companies identified in Wyoming records told the FT they did not request royalty relief.

Congressional Democrats have begun to scrutinise the relief, with members of the House natural resources committee accusing the interior department of changing guidance since April so that companies no longer needed to show why they needed a lower rate to keep wells in the black.

“Under the new guidance, all companies would be eligible for near-zero royalties whenever the price of oil goes below a certain point. This is a ludicrous outcome that provides an extremely generous subsidy to the oil and gas industry while robbing taxpayers and states of valuable revenue,” wrote Raúl Grijalva of Arizona, the House committee chairman.

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