A Fair Share: The Case for Updating Federal Royalties

Jun 20, 2013

DENVER—Stagnant federal royalty rates are depriving states and communities of urgently needed revenue, according to a new report by the Center for Western Priorities. The analysis found that the federal government is undercharging oil and gas companies compared to western energy-producing states that have kept pace with evolving conditions. The antiquated federal rates further stress municipal and state budgets and squeeze communities ill-equipped to handle the strain of industrial drilling.


State-by-State Analysis Shows Huge Sums Left Unutilized

“Hundred year old federal royalty rates are putting an unnecessary strain on many western communities,” said Center for Western Priorities Policy Director Greg Zimmerman. “Updating the federal rates will mean more teachers in classrooms, more cops on patrol, improved infrastructure, and conservation efforts that keep pace with industrial development.”

The federal onshore royalty rate for oil and gas is 12.5 percent. Most oil and gas producing western states charge between 16.67 and 18.75 percent, with Texas charging 25 percent—double the federal rate. The proceeds from federal revenues are split between the U.S. Treasury and the originating states. The report, A Fair Share, shows that energy rich states in the Rocky Mountain West are losing between $400 million and $600 million annually because of the antiquated federal rate.

The Center for Western Priorities estimated the amount of money each state is missing out on as a result of these outdated royalty rates. The analysis projects increased revenues to western states, if the federal government increased royalty rates to 16.67 percent or 18.75 percent

Increased Revenue

In the report, CWP offers five possible solutions to ensure that Americans get a fair share of the proceeds from publicly owned oil and gas resources. The solutions involve addressing the deficit between federal royalty rates and already-established state rates.