U.S. Cuts Royalty Payments for Drillers on Utah Federal Land (2)

The Trump administration has granted at least 76 petitions to cut royalty payments for oil and natural gas produced on public land in Utah -- a move condemned by critics as encouraging production the market doesn’t need.

The Bureau of Land Management approved all 76 petitions it received for leases in Utah since May 1, according to an online government database. The approvals temporarily lower royalty rates so that oil companies can pay the federal government as little as 2.5% the value of oil and natural gas extracted from the tracts, instead of the usual 12.5% rate.

Data on royalty relief applications from other states were not available in the database as of early Wednesday, even though applications have been filed for leases outside of Utah.

BLM’s move is designed to aid oil companies fighting to survive after the coronavirus pandemic quashed fuel demand and a price war broke out between Russia and Saudi Arabia. Prices have recovered somewhat from epic lows in April as global producers curb output and U.S. oil companies halt production at some wells.

Yet conservationists said the Trump administration’s decision would encourage more oil production at a time when storage tanks are filling up and the industry still needs to curtail output.

“They’re neck deep in oil and we’re throwing them an anchor,” said David Jenkins, president of Conservatives for Responsible Stewardship. “Not only does this boneheaded move shortchange American taxpayers and Western states at the worst possible time, it incentivizes oil production during the worst oil glut in history,” Jenkins said.

Earlier: A Month After Oil Plunged Into the Abyss, Prices Are Surging

The decision also sparked ire on Capitol Hill, where Representative Raul Grijalva of Arizona, the Democrat who heads the Natural Resources Committee overseeing the Interior Department, complained about the royalty relief.

In a letter to the Government Accountability Office Wednesday evening, Grijalva said he was “concerned that in its haste to approve huge numbers of royalty cuts, BLM may not be fully following the requirements” that govern that relief.

The Interior Department earlier rebuffed pleas by some oil industry advocates to grant widespread royalty relief and issue a blanket waiver governing leases on land and in the Gulf of Mexico. The Bureau of Land Management, however, promised to expedite reviews of royalty relief petitions for onshore leases, especially for companies arguing production from existing wells would be halted without it.

The Bureau of Land Management said that it is not granting any special treatment, despite the clamor for blanket relief.

“BLM state offices are only approving suspension of operations and royalty rate reduction applications when it is in the best interest of conservation to do so or when it would encourage the greatest ultimate recovery of our natural resources,” the agency said in an emailed statement. The BLM is following laws and regulations that “have existed for decades and across multiple administrations.”

For offshore oil leases, companies can seek royalty relief through a more lengthy, multi step application process and under narrow terms that industry advocates say could make it impossible to win waivers.

(Updates with lawmaker request to Government Accountability Office in seventh paragraph)

To contact the reporter on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net

John Harney

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