Land management bureau lessens requirements for oil and gas royalty cut requests

The Bureau of Land Management (BLM) has changed its guidance for companies that want to see their royalty payments for oil and gas leases reduced, lessening the requirements for what companies need to prove in order to get the rate cuts. 

The bureau’s prior guidance, issued in April, stated that companies applying for royalty relief on leased federal lands had to show that leases are “uneconomic at the current royalty rate, but would be economic with a royalty rate reduction.”

The new guidance, however, requires only that the leases are “uneconomic at the current royalty rate.”

Democrats, in a letter to the Interior Department, which oversees the bureau, argue that this change puts the bureau in violation of the Mineral Leasing Act, which gives the department the authority to grant royalty relief if applicants show “that a reduction of that rate is necessary to promote development of the lease.”

“By removing the requirement that companies show that royalty reduction is necessary to develop the lease, BLM is not subjecting applicants to the standard needed to comply with the Mineral Leasing Act,” said the letter from Democratic Reps. Raúl Grijalva (Ariz.), Alan Lowenthal (Calif.) and Mike Levin (Calif.). 

“This subverts one of the sole arguments for the public benefit of reducing royalties: that the royalty reduction is necessary to enable the lease to continue producing,” they wrote. “Under the new guidance, all companies would be eligible for near-zero royalties whenever the price of oil goes below a certain point. This is a ludicrous outcome that provides an extremely generous subsidy to the oil and gas industry while robbing taxpayers and states of valuable revenue.”

The lawmakers also asked the agency several questions including about when the guidance was changed, in addition to other questions about its leasing policies. 

The BLM, in a statement to The Hill, disagreed with the lawmakers’ interpretation of the Mineral Leasing Act. 

“Neither the MLA nor the regulations require a BLM determination that a royalty reduction renders a lease to be economic,” the agency said, adding that the new guidance “clarifies and more closely aligns with the statutory and regulatory standards.”

“Career experts at the Bureau approving of some of these applications for only up to 60 days has been in the best interest of conservation and encourages the greatest ultimate recovery of our natural resources,” the agency said. 

The original guidance was issued in April after some in the oil and gas industry asked the administration to reduce the rates they were paying to lease land from the federal government for oil and gas development amid low prices related to the coronavirus pandemic.

The Interior Department declined to issue a wholesale royalty cut, but instead said that companies who wanted royalty rates should apply for them. 

The agency has granted 144 requests for royalty relief and denied 66 requests since April 1, according to data available on the BLM website. It has only posted data from three of its 11 state offices.