For nearly his entire presidency, President Barack Obama has been calling for reasonable reforms to the royalty rates paid by oil and gas companies drilling on national public lands. And now, it looks like the Interior Department may actually take action, which would be a huge win for communities across the West.
Last week, the agency announced that it would propose a draft rule to modernize oil and gas royalties in March of 2016, a necessary step toward updating a system that has remained largely unchanged for nearly 100 years.
Under current law, companies pay a royalty of 12.5 percent to American taxpayers for the right to extract publicly-owned oil and gas resources. Unchanged since 1920, the oil and gas royalty rate on public lands sits well below the 16.67-18.75 percent royalty rate typically charged by Western states on state-owned lands. The failure to modernize royalties costs American taxpayers hundreds of millions of dollars each year.
But pressure has been mounting on the Interior Department to address low oil and gas royalties for years. Elected officials in the West from city councils to mayors and county commissions have all formally lent their support for this critical change.
And Western leaders aren’t the only ones calling for an update to royalty policies. The Government Accountability Office (GAO) in 2008 wrote that “Congress and the public are justifiably concerned about whether the federal government is getting a fair return for its energy resources as oil and gas company profits have reached record levels.”
Three years later, the GAO placed the Interior Department on its “high risk” list for fraud, waste, and abuse, in part because the agency was unable to assure taxpayers were receiving a fair return from oil and gas development on U.S. public lands. The GAO indicated recently that the agency would not be removed from the “high risk” list until it completes updates to onshore royalty rate regulations.
But the first sign that the agency was serious about the issue didn’t come until a speech by Interior Secretary Sally Jewell earlier this year. She said:
When it comes to reforms, we need to improve the way we do business as a federal government, plain and simple. Part of that means ensuring that the American taxpayer is getting a fair return for the use of natural resources on public lands.
Secretary Jewell’s speech was quickly followed by an “Advanced Notice of Proposed Rulemaking,” which gave the public an opportunity last spring to comment on the agency’s plans to modernize royalty rates. The public submitted 45,000 comments supporting updated royalty rates, while a mere 13 comments advocated for the status quo.
With still more than 400 days until President Obama leaves office, there’s plenty of time for the Interior Department to complete a rulemaking and fix outdated oil and gas royalties on public lands.