Group: Feds should boost mineral royalties

Higher rate makes public lands uneconomic, industry rep says

While the campaign to export liquefied natural gas gains momentum, one organization says the federal government charges too little for minerals extracted from federal lands.

Industry officials countered that it’s already difficult enough to drill on federal land and increasing the royalty rate would add an unnecessary obstacle.

Elected officials in the West are pushing for the export of liquefied natural gas as a way to support a natural gas industry hungry for new markets.

U.S. Sen. Mark Udall, D-Colo., and U.S. Rep. Cory Gardner, R-Colo., both scrambled last week to introduce legislation aimed at approving exports of liquefied natural gas.

The royalty rate for drilling and mining on federal lands is 12.5 percent, a level the Denver-based Western Values Project said is too low. The project released a report on Monday calling for an increase in the royalty rate.

“Compared to the cut that governments in other oil and gas producing countries get for extracted oil and gas, the U.S. is among the lowest in the world,” the project’s report said.

Royalty revenues are split between the federal government and the states in which they are derived, with the federal take being 51 percent and the remainder going to the local governments to aid them in dealing with the effects of development.

“We feel that increased development will affect Western communities acutely and that they should receive more for their resources to deal with mitigation, reclamation, and needed infrastructure improvements that comes from increased development,” Ross Lane, director of the Western Values Project, said in an email.

The federal government, however, already is getting more money from the oil and gas industry in the form of regulatory costs, said Kathleen Sgamma, vice president of public and government affairs for the Western Energy Alliance, an industry group.

Boosting royalties “would make public lands even more uneconomic,” Sgamma said.

States tend to have high royalty rates, Sgamma said, but they also act far more quickly on drilling applications, a difference measured in weeks versus years for federal approvals.

“It’s more costly to drill on (federal) lands and because states are more rational, they’re able to charge a higher royalty rate,” Sgamma said.

A study by the Bureau of Land Management found that federal lands accounted for 10 percent of the drilling permits issued by the Colorado Oil and Gas Conservation Commission in 2012. In northwest Colorado, federal lands accounted for 25 percent of drilling approvals.

Whether the 51-49 split should be altered to favor local governments “is a good question,” Lane said, adding, “But I still believe the Interior Department has largely failed at making sure taxpayers are getting a fair return.”

The General Accountability Office report showing the U.S. with one of the world’s lowest royalty rates underscores his point, Lane said.

In fiscal year 2012, companies earned more than $66 billion from the sale of oil and gas produced from federal lands and waters, the GAO report said, noting they paid $10 billion for the right to develop federal resources in royalties, rents, and other payments.


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