Lost Royalties Cost Taxpayers At Least $8 Million So Far

AnalysisLost Royalties Cost Taxpayers At Least $8 Million So FarRoyalty relief for oil and gas leases on federal land are costing taxpayers millions

Article, Energy & Natural Resources,  | Analysis
Jul 2, 2020  | 2 min read | Print Article

For the right to develop oil and natural gas from federal lands, the Bureau of Land Management (the Bureau) typically charges producers a royalty of 12.5 percent of the resources’ sales value. This rate already lags behind what the same producers are charged for operating on state and federal lands. The Bureau’s recent initiative to grant royalty relief to leases covering a wide swathe of federal land will reduce royalty revenues further. The question is – by how much?

Using historical production data from the leases granted royalty relief thus far, and valuing that production at average monthly benchmark commodity prices, Taxpayers for Common Sense has calculated a preliminary estimate of lost royalty revenue. Through June 26, the Bureau’s spotty records indicated that 277 leases covering 210,000 acres of federal land in Wyoming, Utah, and Colorado had been granted royalty relief.* For the estimated production from these leases subject to lower royalty rates, TCS estimates that taxpayers will lose $8.04 million in revenue.

Roughly half of this revenue would have been shared with the states.  That is, Wyoming, Utah, and Colorado will receive approximately $4 million less in disbursements from the federal government because of royalty relief for federal oil and gas leases. Wyoming’s budget will be hit the hardest; the state is estimated to lose out on $3.7 million in royalties.

This revenue estimate will rise, however, as the Bureau continues to update its records to reflect royalty relief it granted months ago. The actual lost revenue total will only be known months from now, when operators report production levels for the months when relief was in effect. Furthermore, the estimates detailed below are the product of a conservative methodology that likely understates production and thus lost revenue.

State Est. RR-Oil Volume (bbl) Est. RR-Gas Volume (mcf) Est. Value or RR-Oil Est. Value of RR-Gas Lost Royalties State Share
CO 5,436 89,681 $181,434 $150,776 $20,989 $10,285
UT 143,617 204,137 $4,793,345 $342,651 $519,291 $254,453
WY 774,789 21,902,700 $25,678,881 $36,826,919 $7,501,026 $3,675,503
TOTAL 923,842 22,196,518 $30,653,660 $37,320,346 $8,041,307 $3,940,240

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