What would a higher federal royalty rate for oil and gas leasing mean?
It’s not an easy question, especially in Wyoming. The answer depends on how much higher the rate would be – and, of course, who you ask.
“Everyone has their opinion,” Gov. Mark Gordon told the Star-Tribune at a news conference on Friday. “This conversation has been going on for 30 years.”
Just last week, Gordon said, he urged Interior Department officials, including Interior Secretary Deb Haaland, not to raise the federal royalty rate.
The oil and gas industry expects the Biden administration to raise the federal royalty rate upon taking office, said Pete Obermueller, president of the Petroleum Association of Wyoming. The administration said it would hold its first onshore lease sale — Wyoming’s first since late 2020 — in the first quarter of 2022.
Since the Bureau of Land Management (BLM) must issue a public notice and allow a one-month protest period before proceeding with a lease sale, and the end of the first quarter is less than two months away, it is expected to officially announce the upcoming sale. in the next weeks. The seemingly accidental posting a draft notice on the agency’s website may have given the state a preview of what’s to come.
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According to the since-deleted notice, the royalty rate at the next lease sale would be 18.75%, a substantial departure from the 12.5% rate used by the BLM for more than a century. By comparison, Wyoming’s state land royalty rate is 16.67%. On private land, it is often higher.
Nearly half of Wyoming’s land is federally owned, and the state is the largest producer of natural gas and the second largest producer of oil on federal land, where drilling is more difficult to authorize than on private land.
A Analysis 2017 by the Government Accountability Office found that increasing the federal royalty rate “could slightly decrease production on federal lands”, but that “the effect on production could be ‘negligible’ over 10 years if royalty rates increased to 18.75%”.
Obermueller isn’t so sure.
Any increase in the royalty rate “certainly makes it more expensive to do business here,” Obermueller said. “Multiple studies have shown that Wyoming is already the most expensive oil and gas state in taxes and royalties. So it just makes things worse and we become less competitive.
Gordon, meanwhile, said the potential change in royalties was an attempt to shut down industry on federal lands.
“What happens as a result of these policies is not something about climate, it’s something about energy development on public lands,” he said. “And what it does is move it from places where it’s more regulated and more carefully thought out, to places where it isn’t at all.”
Shannon Anderson, an attorney for the Powder River Basin Resource Council, said an extreme rise in the royalty rate — a 30%, 40% or 50% increase — could have the effect Gordon described. But she said a more moderate increase, to a level more comparable to state royalty rates, could generate millions of dollars for the federal treasury and significantly increase Wyoming’s share of royalty revenue without driving producers away.
“The main drivers have always been and always will be the price of oil and the geology,” Anderson said. “Wyoming has good geology, so we’re good there. It’s really a question of price.
But with oil and gas producers already subject to Wyoming’s high property taxes and severance pay, in addition to federal royalties and the complexity of authorizing wells on federal lands, Obermueller thinks even a moderate increase of the royalty rate will hurt the state industry.
“I think it’s pretty obvious to most business owners,” he said, “that making business more expensive makes it harder to be successful.”