A few years ago the Department of the Interior found its way onto a list published by the U.S. Government Accountability Office, identifying the department as being at high risk for inefficiency and tax dollar waste. One of the main reasons the DOI has remained on the list is its poor management of royalties acquired from oil and gas drilling, cited in multiple GAO reports.
Greg Zimmerman, policy director for the Center for Western Priorities, said the U.S. has one of the lowest royalty rates for oil and gas drilling on federal land in the entire world, sitting at 12.5 percent of profits, and not changing since the 1920s. Zimmerman also said the DOI’s inaction on this issue has lost the tax payers a lot of possible revenue.
“The impact of this low royalty rate on U.S. public lands is that western state tax-payers are loosing between $500 million and $730 million. They’re losing a significant sum of money,” Zimmerman said.
The low royalty rate for drilling on federal lands is contrasted by the higher returns for drilling on state lands. In Utah the rate is 16.67 percent, which may not sound like a big difference, but when you considers that half of federal royalties go back to the state the oil was drilled in, not at least matching the federal rate with the state rate, costs Utah anywhere from $50-80 million annually.
There is some good news though. The DOI and the Bureau of Land Management announced in April that they would begin to look into restructuring how oil and gas royalties are collected, along with reassessing other dated public land policies.
“The Department of the Interior and the Bureau of Land Management recognize that it’s past time for them to assess what the royalty rate is, and certainly consider bringing into line with what everyone else across the west is charging,” Zimmerman said.
One concern with addressing this issue is that higher royalty payouts might dissuade oil companies from continuing to drill. Zimmerman said the concern is valid, however, data has shown that past rate increases on state lands did not deter drilling operations.
“Companies are always going to continue going to where the best resource lies, despite small changes in the fiscal structure,” Zimmerman said. “But the taxpayers stand to benefit significantly by very small reasonable increases in fees on oil and gas companies, and we will continue getting the oil and natural gas out of the ground that helps run the American economy."
The DOI has opened a public comment period for discussion on these and other public land issues that closes July 19.