Wyoming oil, gas companies receive most royalty cuts

Wyoming oil, gas companies receive most royalty cuts
 
By Camille Erickson
Casper Star-Tribune
Via Wyoming News Exchange
 
CASPER — Oil and gas companies operating on public land in Wyoming reaped the vast majority of royalty and lease relief from the federal government during an aid program spurred by the COVID-19 pandemic.
Royalties are the mineral payments made by operators extracting oil and gas from public land. Onshore royalties are typically set at a rate of 12.5%. But in response to the economic devastation and crash in oil markets, the Bureau of Land Management began accepting applications for significant royalty reductions from struggling companies back in May.
Since then, hundreds of applications have been considered by BLM offices across the country. Several firms with operations in Wyoming saw their royalty rates slashed from 12.5% to 0.5%. If companies received approval for relief, the adjusted royalty rate went into effect for 60 days, with an opportunity to reapply.
As of the end of July, the BLM had approved 324 royalty reduction requests on 261,000 acres of public land from operators in Wyoming, by far the most of any Western state, according to analysis shared by the Western Values Project, a watchdog group working to protect public land.
Not all requests were granted, though: 132 applications for lease suspensions or royalty reliefs were denied in Wyoming, according to the BLM’s LR2000 database. The bureau made the pandemic-related aid temporary and told the Star-Tribune on Friday the program had officially ended, though it declined to offer a specific end date.
“The BLM has longstanding laws and regulations which allow for the review of applications from operators seeking royalty relief and suspension of operations and/or production,” a BLM spokesman said. “States across the country are now in various stages of reopening and, as such, the basis for COVID-19-based relief has concluded.”
Meanwhile, revenue collected from oil and gas royalty payments has declined this year, likely due to the federal government’s pandemic-related relief programs and a steep drop in production.
Onshore royalty collection has plummeted over 26% this year, compared to the same eight-month period in 2019, according to research by the Western Values Project. That translates into a loss of $578 million in revenue for taxpayers. About half of all royalties collected by the federal government from operators in Wyoming is returned to the state.
Companies in Wyoming also had 401 lease suspensions covering 398,225 acres approved by the BLM, again the highest of any state in the West. The state with the next highest number of lease suspensions was Colorado; it had just eight leases approved for suspension. Lease suspensions allow firms to halt the clock on their 10-year leases while production slows or stops.
Beginning in March, U.S. oil producers started contending with a global price war and a huge glut in supply amid a pandemic that drastically slashed fuel demand. The crash in oil prices, combined with a shortfall in storage, has left the world swimming in oil supply.
Though prices have slightly rebounded, times are still tough.
According to the Wyoming Oil and Gas Conservation Commission’s most recent report, oil production in June trailed last year’s levels by 17%. Gas also lagged by 12%. Only one rig is up in the state, according to Baker Hughes.
According to the BLM’s database, companies working in Wyoming including Samson Resources, Kirkwood Oil and Gas LLC, Nerd Gas, Chesapeake Energy and Northwoods Lands Inc., benefited from the federal government’s largess.
True Oil, a Wyoming-based oil and gas exploration and development firm, is also listed as having received suspensions on 11 leases and a 12% royalty reduction on 40 acres of land this year. But a company spokesman said True Oil actually hadn’t applied or benefited from any royalty reductions or lease suspensions offered by the BLM. Of the leases listed, the company recently sold the majority of them. As for the others, True Oil either has a minority interest or is just the record title holder, meaning it doesn’t have any rights to produce or sell the resource, or benefit from the relief.
“We do realize that there may be some title paperwork that needs to be cleared up,” said Bill Salvin, a True Oil spokesman.
Though it didn’t apply or benefit from the BLM’s COVID-19 royalty reduction and lease suspension program, Salvin said the company still supports “efforts of the government to make natural resource production economic.”
“The reason that we are supportive of those efforts is because we support energy security in the country,” Salvin said. “It supports economic development by providing jobs to the workers who drill the wells and produce the oil and gas.”
The Petroleum Association of Wyoming, a group representing many oil and gas operators in the state, welcomed the interim relief back in May, pointing to the benefits the temporary aid could have for the state as energy businesses attempt to recover from the pandemic. The association rejected the characterization of the relief by opponents as “unfair handouts.”
“The federal government utilized longstanding regulations designed to provide flexibility in the industry to keep Americans working and position the economy for a quick recovery from COVID-19,” Ryan McConnaughey, the communications director for the association, told the Star-Tribune back when the relief began.
“While some sectors of the economy received tens of billions in direct payments from the emergency PPP program, oil and natural gas companies adhered to existing law to suspend drilling operations and temporarily reduce royalty payments to preserve the capital needed to jump-start production in the future,” McConnaughey added.
And yet, several groups advocating for the protection of public lands have been critical of the federal help extended to oil and gas companies during the economic downturn and public health crisis.
The Western Values Project has been closely tracking the royalty cuts and lease suspensions offered to oil and gas companies operating on federal land in recent months and criticized the aid.
“Oil and gas corporations have been at the Trump administration’s taxpayer-funded trough from the very beginning,” said Jayson O’Neill, Western Values project director. “Between efforts to derail public land protections and the cooperative sage-grouse habitat plans to scoring major royalty rate cuts and lease suspensions that are crippling state and local budgets, taxpayers are paying a hefty price for this industry’s bloated influence on this administration.”
Alan Rogers is the communications director for the Wyoming Outdoor Council, a group advocating for a balance when it comes to drilling on public land Wyoming and conserving wildlife and the environment. Rogers said the group was not opposed to drilling on public land. But he is concerned that the federal relief from royalty reductions and lease suspensions is not trickling down or being properly reinvested into workers or local businesses in Wyoming.
“Our position (is) that oil, gas and coal from public land are our public resources; they belong to citizens,” Rogers said. “They are sold by the federal government on our behalf to these companies. We don’t think it is appropriate or that we should be waiving those royalty payments.”
More permanent changes to the rules guiding oil and gas royalty collection and leasing could be coming down the pipeline.
The BLM plans to amend three regulatory requirements for oil and gas operators operating on federal and tribal land. Lifting these existing requirements would allow operators to more efficiently and accurately handle and measure the commodities they produce, according to the Interior Department’s announcement.
“These proposed enhancements streamline regulations to ensure that our oversight of energy production on America’s public lands is consistent and fair,” Deputy Secretary of the Interior Kate MacGregor said in a statement.
The agency noted the changes would not significantly affect the amount of royalty revenue collected.