US slashes royalties on federal oil, gas leases

President Donald Trump's administration is temporarily cutting royalty rates on federal oil and gas leases by as much as 80pc as it processes royalty relief requests from operators struggling with lower prices.

The US Bureau of Land Management (BLM) over the past month has cut royalties on at least 76 federal leases in Utah, according to a federal database, reducing the royalty rate to as low as 2.5pc, from 12.5pc, on production from 1 May to 29 June. The total number of royalty reductions is expected to be far higher after accounting for federal leases in oil-producing states such as Colorado, New Mexico, Wyoming and California.

BLM has not answered questions on how many royalty relief requests it has received. But the agency has approved every request it has received so far and is processing many requests in less than a week, according to federal data.

Oil producers for the past two months have been lobbying the administration to provide across-the-board royalty relief in western states and offshore to help operators survive a crash in prices caused primarily by government efforts to contain the coronavirus pandemic. But the administration last month rejected that approach. US interior secretary David Bernhardt instead told oil state lawmakers that the administration would quickly process targeted royalty relief requests.

Critics say cutting royalty rates will exacerbate an oversupply of crude and keep prices low, since operators with lower royalties will have an incentive to boost production.

"Charging producers less for taxpayer-owned oil and gas will not alter market headwinds facing the industry but it will costing taxpayers billions of dollars in revenue," Taxpayers for Common Sense president Steve Ellis said last month.

Oil state governors have raised concerns that cutting federal royalties, which are shared with states, will deprive them of needed revenue at a time they face massive budget shortfalls. The Western Governors Association, in a 3 April letter to Bernhardt, said suspending royalty collection would have a "direct negative effect on states."

BLM today defended its royalty relief policies, which it said have existed for decades and require operators to submit an application with financial data showing why a reduction is needed for a lease to keep producing. BLM is only approving requests when it is in the "best interest of conservation" of the resource or would encourage recovery of federal oil and gas resources, the agency said.

"These longstanding processes help ensure America has a stable long-term energy supply and provide long-term value to American taxpayers," BLM said.

US independents Kirkwood Oil & Gas, Lonesome Oil & Gas and Nerd Gas are listed as lessees on many of the 76 royalty reductions approved so far for leases in Utah. The companies filed their requests about a week after the administration announced that it would not allow blanket relief. Kirkwood did not immediately respond for comment. Lonesome and Nerd Gas could not immediately be reached for comment.

Offshore producers face a more complicated process for seeking royalty relief that often takes months to complete. The US Bureau of Safety and Environmental Enforcement, which manages that process, had not received any royalty relief requests this year as of 6 May.

By Chris Knight