Modernizing BLM onshore rental rates would generate $56M annually -- report

E&E News
By Scott Steater
August 7, 2014

new report by a nonpartisan government watchdog group concludes that increasing the rental fee that oil and natural gas companies pay to hold onto nonproducing leases on public lands would generate tens of millions of dollars for taxpayers -- a finding the industry strongly rebukes as misleading.

The Center for Western Priorities report, titled "A Renter's Market: Outdated Oil and Gas Rental Rates Fail Taxpayers," says that "modernizing" the Bureau of Land Management's oil and gas rental rates, which at $1.50 per acre have not been updated since 1987, would generate about $56 million annually.

The report also states that increasing the fee would discourage companies from stockpiling unused oil and gas leases, which according to BLM currently total nearly 7,000 idle drilling permits.

The Obama administration has long proposed establishing new fees on nonproducing leases, but GOP leaders in Congress have repeatedly blocked such efforts.

"With soaring debt, now more than ever the federal government has a responsibility to guarantee American taxpayers are receiving a fair return from companies drilling for oil and gas on public lands and profiting from publicly-owned energy resources," Greg Zimmerman, the center's policy director, said in a statement.

The report's conclusion that taxpayers are somehow being denied valuable revenue at a time of shrinking federal budgets was strongly rejected by Kathleen Sgamma, the vice president of government and public affairs for Denver-based Western Energy Alliance, which represents more than 400 energy companies that collectively account for nearly a quarter of the nation's natural gas and 21 percent of its oil production.

Sgamma said the oil and gas industry more than pays its share for developing valuable energy resources on public lands.

"We return $54.12 for every taxpayer dollar spent on the federal onshore program, so we are more than paying our fair share," she said. "If Western Priorities wants to save the government money, they spend a lot more than $56 million annually responding to frivolous lawsuits from environmental groups. I think that might be a better way to save money."

Concurrently with the center's report, a coalition of 43 House Democrats led by California Rep. Alan Lowenthal and Oregon Rep. Peter DeFazio, the ranking member on the House Natural Resources Committee, sent a letter today to a top Interior Department official asking the department to "make modernizing the outdated and inadequate onshore oil and gas fiscal system a top priority."

"Modernizing the oil and gas fiscal system has the potential to be a defining issue for your tenure, and could result in a legacy of billions of additional dollars for American taxpayers," they wrote in the letter addressed to Janice Schneider, Interior's assistant secretary for lands and minerals management. "We ask that you not let the opportunity to make meaningful changes in our royalty system go to waste."

The five-page letter from House Democrats comes after Lowenthal in January sponsored legislation, H.R. 3859, co-sponsored by DeFazio and 11 others, that would double the fee charged to bid on or maintain oil and gas leases on public lands.

The bill would require companies to bid at least $4 instead of $2 for every acre they lease from BLM. Fees to hold onto nonproducing leases would rise from $1.50 to $3 for newer leases and $2 to $4 for older leases (E&E Daily, Jan. 15).

"Unfortunately, it appears that the process of modernizing onshore royalty rates has stalled," they wrote. "Although [Interior] has conducted numerous studies on the potential impact of changing onshore royalty rates, no regulatory steps have been taken."

The issue of oil and gas leasing and rental reforms has been a major one for both House Democrats and the Center for Western Priorities.

The center was part of a coalition in August 2013 that released a report proposing, among other things, raising the royalty rate for onshore oil and gas production from 12.5 percent to an initial 18.75 percent that would rise to 22.5 percent in later years to encourage swifter production and help pay for conservation (Greenwire, Aug. 7, 2013).

That report also recommended that BLM raise rental rates for the roughly 21 million acres of leases not currently producing oil or gas.

The Center for Western Priorities two months earlier, in June 2013, released a report that found oil and gas production on federal lands in Colorado, Montana, New Mexico, Utah and Wyoming would have generated an additional $400 million to $600 million in revenues for the states the year before if the federal rate had been commensurate with rates charged by each of the states (EnergyWire, June 21, 2013).

Zimmerman, the center's policy director, said in his statement that he's confident Interior Secretary Sally Jewell "understands how important it is to maximize returns for the American taxpayer" on onshore oil and gas development on public lands.

"We're confident that the Secretary will take this golden opportunity to modernize royalties and rentals, and ensure Americans receive a fair share from the oil and gas boom," he said