Federal royalty rates too low, report says

The federal government should increase its royalty rates on minerals because its rate is lower than those of energy-
producing western states, according to a report.

The Denver-based Center for Western Priorities made the assertion in the report entitled “A Fair Share.”

An energy-industry spokesman called the idea a “reckless proposal.”

The federal government’s 12.5 percent federal onshore rate for oil and gas production is well below that of Colorado, which charges 16.67 percent, as do the adjacent states of Utah and Wyoming.

Texas has a 25 percent royalty rate for minerals produced from its lands, and North Dakota has an 18.75 percent rate, as does New Mexico.

“Antiquated federal royalty rates are depriving taxpayers and many Western states of urgently needed revenue that could be used to pay down the national debt, expand access to hunting, fishing, and recreation opportunities, protect public lands, and improve infrastructure strained by oil and gas drilling operations,” the report says.

States such as Colorado, Montana, New Mexico, Utah and Wyoming are losing out on $400 million to $600 million in gross revenue annually because of the low federal onshore royalty rate, the report says.

Federal mineral royalties are split 51 percent to 49 percent with the lesser amount going to affected states, where they are frequently directed to local governments, such as cities and counties, to deal with the effects of energy development.

If there’s a lack of federal mineral lease revenue, it’s not because of the low royalty rate, said David Ludlam, executive director of the West Slope Colorado Oil and Gas Association.

Ludlam likened the low federal royalty rate to efforts by the Federal Reserve to “jump-start America’s housing recovery” with lower mortgage interest rates.

The Interior Department “understands that increasing what they charge for drilling in the midst of a free-fall decline of energy production on public lands is a reckless proposal,” Ludlam said. “Creating more oil and gas revenue from America’s public lands doesn’t require charging more to drill but instead requires more drilling.”


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If an energy-industry spokesman called the idea a “reckless proposal,” I’m wondering who s/he thinks owns the resource. I think the reckless proposal was when America decided to give their resources to extractive industries without some kind of profit sharing arrangement. Note that I said “profit sharing.” I’m not saying that private industries developing our resources shouldn’t be paid for the value they add through production, “profit sharing” implies that the revenue is shared AFTER the costs of production are deducted. Wouldn’t profit sharing be more equitable for the people who actually own the resource?

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