Royalty relief measure clears first Senate hurdle

CASPER — The federal government is reportedly considering raising the royalty rate at the upcoming oil and gas lease sale. An attempt by state legislators to off set such an increase is one step closer to becoming law. 
Wyoming gets 49% of the royalties generated by oil and gas production on its federal lands. Senate File 84, sponsored by the Select Federal Natural Resource Management Committee, would return the state’s share of federal royalties to oil and gas producers. It passed an introductory vote by a margin of 26-4 on Tuesday, easily surpassing the two-thirds majority needed to advance to committee. 
The bill sends a message to the federal government: Wyoming, the top natural gas producer and No. 2 oil producer on federal lands, doesn’t want royalties to go up. And it sends a message to producers that the state is on their side. 
“Anything that could assist in bringing down the cost of doing business on federal lands obviously makes those parcels more enticing to operators,” said Ryan McConnaughey, communications director for the Petroleum Association of Wyoming. 
The Biden administration’s temporary halt on new oil and gas leases has eroded operators’ confidence in the federal program. Because roughly half of Wyoming’s surface is owned by the federal government, backers of Senate File 84 hope it will make the state’s federal lands more enticing. 
Not everyone agrees that rejecting the prospect of additional federal royalties is the right approach. 
“Wyoming would be really shooting itself in the foot to then turn around and want to give money back to the industry,” said Jeremy Nichols, climate and energy program director for environmental group WildEarth Guardians. 
According to Shannon Anderson, staff attorney for the Powder River Basin Resource Council, geology is the primary factor that drives mineral development, followed by market price. Everything else — including taxes and royalties — comes after.
Those third-tier factors, however, are the only ones the state can control, though Wyoming still lacks the authority to refund federal royalties directly. Instead, Senate File 84 would direct the state treasurer to transfer some of the state’s federal royalty money to the severance tax distribution account. The Wyoming Department of Revenue would then issue severance tax refunds calculated according to the federal royalty increase. 
If the royalty rate did increase, the bill’s opponents argue, the state could use that money to cover its existing budget shortfalls.
“It’s bad policy for Wyoming to send this kind of a message — that we don’t want the revenue opportunity that federal mineral royalties would bring to the state,” Anderson said. 
But some in Wyoming, where tax rates are already high compared with neighboring states, believe the bill is a necessary sacrifice that can sustain oil and gas production in the long term.
According to McConnaughey, it’s demonstrative of “the state’s willingness to secure Wyoming’s competitiveness in the face of the challenges coming from the Biden administration.” 
The bill now moves to the Senate Minerals, Business and Economic Development Committee for review.
 
This story was published on Feb. 16.