US drops rule to defer oil royalty payments

President Donald Trump's administration has quietly withdrawn a rule that was expected to cite Covid-19 as the basis for allowing oil and gas operators on federal land to defer paying government royalties for three months.

The royalty payment delay rule was marked as "withdrawn" on 29 June, according to a government database of rules that are under interagency review at the White House. The US Interior Department's Office of Natural Resources Revenue (ONRR), which has previously declined to discuss the rule, did not respond to a request for comment.

Oil and gas industry officials had expected the rule would have provided operators a three-month deferral of royalty payments, as a way to help conserve cash for operators struggling from low energy prices caused by Covid-19.

But details about the pending rule prompted backlash from Democrats in the US Congress, who said there was no basis for the administration to rewrite rules to "bail out" oil and gas companies that were struggling before the pandemic. Oil and gas royalty payments to the federal government totaled $5.7bn from September-May, the first nine months of fiscal 2020, and about half of those payments are shared with states.

"It is unclear why the public should accept the industry's demands for special treatment at face value, or why this administration thinks now is a reasonable time to institute a blanket delay in payments," US House Natural Resources Committee chairman Raul Grijalva (D-Arizona) wrote in a 27 May letter to the director of the White House Office of Management and Budget.

Oil prices have recovered somewhat since May, when ONRR submitted the rule for internal review at the White House. An oil industry official last week said election-year politics might have caused the rule to stall after it was submitted.

ONRR yesterday separately sent a letter to oil and gas leaseholders extending by three months, until 1 October, the deadline to recalculate and pay royalties based on a 2016 rule the administration unsuccessfully tried to throw out. The agency cited disruptions from Covid-19 as the basis to give operators more time to comply with the rule, which was expected to cost industry upwards of $72mn/yr.

The Trump administration has used other mechanisms to lower royalty payments by oil and gas operators on federal land. Interior since this spring has approved 12 applications from offshore operators for royalty relief on a monthly basis. The agency also has approved requests on 338 onshore leases to reduce royalty rates to as low as 0.5pc, according to a government database.

The US Bureau of Land Management this summer also plans to propose a rule that would eliminate royalties on gas that is flared because of pipeline or processing limits, so long as the flaring is "consistent with state or tribal rules, regulations or orders," according to a regulatory agenda published yesterday.

By Chris Knight