The Senate Appropriations Interior Subcommittee gathered on Wednesday, May 13^th for a hearing on the Bureau of Land Management (BLM)’s FY2016 budget request, where they heard from BLM’s Director, Neil Kornze, on the agency’s funding priorities for the next fiscal year.

Director Kornze responded to questions on how proposed BLM regulatory changes will impact oil and gas production on federal lands. Chairman Murkowski (R-AK) argued that BLM’s plans to charge fees for oil and gas producers in order to generate funding for increased safety inspections could lead to less production. When asked by Ranking Member Udall (D-NM) how the fees would be beneficial to BLM, Director Kornze explained that currently, 30,000 oil and gas production inspections are needed to ensure safety, and half of them are ‘high priority.’

BLM’s Advanced Notice of a Proposed Rulemaking to increase royalty rates for onshore oil and gas production, and to plans to release a draft rule to reduce lost gas on federal lands were also discussed at the hearing. Senator Cassidy (R-LA) asked about the economic viability of raising royalty rates. Director Kornze responded that the federal royalty rate is already lower than on state lands, noting that the Government Accountability Office (GAO) has repeatedly identified Management of Federal Oil and Gas Resources as ‘high-risk,’ largely because current royalty rates (at a minimum of 12.5%) do not ensure a fair enough return for taxpayers. Director Kornze further explained that BLM is considering a royalty system similar to that of offshore oil and gas development, where rates range from 16-18% and are raised on a lease-by-lease basis. Chairman Murkowski and Senator Daines (R-MT) also raised concerns regarding the industry impact of a rate increase. Director Kornze responded that BLM is currently seeking analysis and answers to such questions, through a public comment period that ends June 5^th.

GAO has also highlighted the lost royalties to taxpayers due to wasted gas that is vented and flared during oil and gas production – an issue that the Administration has pledged to address through updated BLM regulations. Senator Hoeven (R-ND) asked about the implementation of BLM’s plans, inquiring about how gas gathering systems would be installed to capture methane for use that would otherwise be vented or flared. Director Kornze assured the Subcommittee that BLM is placing engineering staff with producers to facilitate the process of capturing gas without holding up production.

TCS first drew attention to the issue of wasted gas and lost royalties for taxpayers in our Burning Money report in November 2014, where we found that federal taxpayers lost in excess of $380 million from 2006-2013 on gas extracted from onshore federal leases.

Taxpayers are due a fair return on the development of publically owned assets. For too long, royalty rates for oil and gas development on public lands have lagged behind royalties charged by other land owners. BLM’s proposed changes are a first step to require companies to pay their fair share, but the agency has a lot more work to do to ensure taxpayers receive fair market value for our assets.