It’s unknown if fee reductions given to oil producers prevented shut downs: watchdog

It’s not clear whether the federal government’s moves to reduce fees paid by oil and gas producers for leasing public lands actually prevented any of them from shutting down wells amid the coronavirus pandemic, according to a nonpartisan watchdog. 

The congressional Government Accountability Office (GAO) determined that the Bureau of Land Management (BLM) did not design its royalty relief policy to determine whether such relief was necessary to keep oil and gas wells operating. 

“Royalty relief may have gone to companies that would not have shut down their wells without the relief,” the GAO report stated. “In such cases, BLM’s temporary royalty relief cost the federal government and states in forgone revenues but may not have had the effect of keeping wells operating and preventing the loss of unrecoverable oil and gas resources.

“As a result, the benefits of the temporary royalty relief are unknown,” it concluded.

Oil and gas producers pay royalties to the federal government to lease public lands and waters for drilling activity, and that money goes back toward funding government activities. 

The GAO report estimated that cuts to these royalties granted by the BLM cost the government $4.5 million for May and June.

It said that the agency cut the fees from the typical 12.5 percent of revenue to an average of less than 1 percent over a 60-day period. 

An early guidance from the agency said that companies applying for royalty cuts had to show that their leases were “uneconomic at the current royalty rate, but would be economic with a royalty rate reduction.”

However, changes made in June only required them to show that the leases are “uneconomic at the current royalty rate.”

The GAO determined that royalty cuts were approved “inconsistently” across different BLM offices and said that “because BLM’s temporary policy on royalty relief did not supply sufficient detail to facilitate uniform decision-making among the offices.”

In response to the report, BLM spokesperson Derrick Henry said in an email that agency offices “only approved suspension of operations and royalty rate reduction applications for up to 60 days when it was legally permissible, in the best interest of the United States, and when it would encourage the greatest ultimate recovery of our natural resources.”

“Applying for royalty relief or suspension of operations and/or production is allowable under the law and has been available to operators for decades across multiple administrations,” he added. “No special circumstances were granted to anyone.”

Henry also said that the GAO “did not work with the Department in good faith, and their report deviated from several best practices that would have enabled them to better do their job in understanding the issue and the actions taken by the Department,” though his statement didn’t provide specifics on how.