US energy royalties drop $2bn during pandemic

Oil, gas and mineral royalties and rents collected by the US government have dropped by half in the months since Covid-19 restrictions disrupted global markets and slashed fuel demand.

Those energy and mineral payments were nearly $2bn in March-June, down from $4bn in the same four months of 2019, according to US Office of Natural Resources Revenue data published on 17 July. The plunge in royalty payments will leave less money for federal initiatives, such as a popular land conservation program, and cut down on the amount of revenue shared with states and tribes.

The revenue decline could also limit a funding source for a pending bill that would provide $9.5bn over five years, paid primarily through surplus oil and gas royalties, for maintenance projects at national parks and other public lands. The US House of Representatives is moving to approve the bill this week and send it to President Donald Trump for his signature.

US House Natural Resources Committee ranking member Rob Bishop (R-Utah) said it would "ludicrous" to approve the bill without changes, since the bill also would provide $900mn/yr in funding for the government acquisition of new land for conservation that would not be contingent on royalty revenue. Bishop worries the bill will add more federal land at the same time as existing land is not being maintained.

The plunge in royalties on federal land likely stems in part from a collapse in crude prices that began in March and bottomed out with a record low settlement price of the US crude benchmark WTI at -$37.61/bl on 20 April. The price of that contract from March to June averaged about $28/bl, or less than half the price during the same period in 2019.

Widespread production shut-ins accompanied the drop in crude prices, likely contributing to the royalty decline. It is not yet possible to tell to what extent production declines contributed because the latest production data on federal and tribal lands is from March, when crude production was 2.9mn b/d. US crude output, including on federal and private lands, has declined by about 2mn b/d since March, according to weekly data from the US Energy Information Administration.

A third factor pushing down revenue is the Trump administration's decision to temporarily reduce royalties. The administration has approved more than 420 requests for royalty relief for onshore producers and 12 requests from offshore producers, according to a federal database and an official from the US Interior Department's Bureau of Ocean Energy Management.

The US government last fiscal year collected $12bn in energy and mineral revenue on federally managed land and offshore waters, of which $1.1bn was collected on behalf of Native American tribes. The largest recent collapse in royalty and rental revenue occurred on offshore leases, where revenue fell $900mn in March-June, down more than 60pc from the same period in 2019.

The Trump administration has tried a variety of approaches to support the oil and gas sector during the downturn, such as allowing companies to temporarily store 21mn bl of crude in the US Strategic Petroleum Reserve. Small oil companies have broadly taken advantage of a paycheck protection program, according to a recent government survey. As of late June, the Federal Reserve Bank of New York also listed purchases of $146.4mn of corporate debt issued by 34 upstream, midstream and refining companies.

By Chris Knight