U.S. reduces royalty charges for drilling on federal land in Utah

By Jennifer A. Dluohy on 5/20/2020

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

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.

The 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 there is continuing pressure on the industry 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.

Representatives of the Interior Department and its Bureau of Land Management did not immediately have a response to emails seeking comments. 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.

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.

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