Washington, DC – Oil and gas companies have avoided paying hundreds of millions of dollars to taxpayers over the last decade for the right to drill on federal lands in Montana, according to Taxpayers for Common Sense (TCS). Lack of competition for leases offered for sale, below-market royalty rates, outdated rental rates, and natural gas waste from oil and gas wells are to blame, per TCS’ new report, Mounting Losses: Oil & Gas Leasing Mismanagement Costs Montana Millions.

The report finds that federal oil and gas parcels in Montana are being leased for rock-bottom prices, or flat out given away. From 2014-2018, one-third of oil and gas leases in the state sold for $2 per acre – the minimum the BLM can legally accept. Oil and gas companies also acquired noncompetitive leases covering thousands of acres, usually the day after an auction. Half of all proceeds collected by the federal government for drilling on federal land goes to the state where the land is located, meaning Montanans have lost at least $110 million over the last decade thanks to lax policies by the federal Bureau of Land Management (BLM).

“Montana taxpayers are losing millions of dollars each year because of antiquated federal oil and gas leasing policies,” says Steve Ellis, president of TCS. “The lack of competition for drilling rights suggests there is a better, more valuable use for these public lands.”

TCS’ research uncovered one example where a company obtained 67,000 acres without bidding a dime, the day after the parcels had been offered at competitive auction. Over four months in 2017 and 2018, that company, Highlands Montana Corporation, acquired a total of 228 oil and gas leases covering more than 113,000 acres, all by circumventing the normal auction process and submitting noncompetitive applications.

“Through this backdoor leasing giveaway  companies can manipulate the system to their benefit–  going so far as to express their intent to lease by nominating the parcels for sale then quietly sitting out the auction waiting to aquire the leases for free the next day,” continued Ellis.

State groups, including the Montana Wildlife Federation, have also raised concerns with the oil and gas leasing system and its impact on fish and wildlife.

“Outdated policies like non-competitive leasing put other land uses like conservation or recreation on the back burner. Along with taxpayers, Montana’s booming $7.1 billion outdoor recreation economy deserves more protection from these wasteful practices,” said Alec Underwood, Federal Conservation Campaigns Coordinator for Montana Wildlife Federation.

The largest source of lost revenue, according to the analysis, is the low royalty rate BLM charges producers developing oil and gas on federal lands. Oil and gas companies pay royalties on the minerals they remove from private, state, or federal lands to compensate the owner of these resources. At 12.5 percent, the federal royalty rate set in 1920 is one-third less than the 18.75 percent the federal government charges for offshore drilling, and less than the 16.67 percent the State of Montana charges for drilling on state lands. TCS estimates federal agencies could have collected $168 million more from 2009 to 2018 if it had been charging the 18.75 percent royalty rate it applies to federal offshore drilling.

“The state of Montana charges a higher royalty. Federal offshore leases pay a higher royalty. It’s time for the BLM to bring its policies into the 21^st century,” says Ellis.

Mounting Losses also examines rental rates and natural gas that is leaked and burned off at well sites. It finds that if the rent for federal leases established in 1987 had simply been indexed to inflation, taxpayers would have received $56 million more in revenue from Montana leases over the last decade. Taxpayers also lost $14 million in royalty revenues from the 21 billion cubic feet of natural gas wasted by companies during drilling between 2008 and 2017. Natural gas is mostly methane, a highly potent greenhouse gas, and current rules allow oil and gas companies to release it into the atmosphere during drilling, royalty-free. The BLM collected only $3,000 on this gas, for an effective royalty rate of less than one percent.

“Oil and gas companies have the ability to lease federal lands for next to nothing, depriving federal taxpayers of the revenue we are rightfully owed and in the face of an unprecedented national debt, reform is long overdue,” concludes Ellis.

FULL REPORT AVAILABLE HERE.

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ABOUT: Taxpayers for Common Sense (TCS) is a nonpartisan budget watchdog that has served as an independent voice for the American taxpayer since 1995.
TCS works to ensure that taxpayer dollars are spent responsibly and that government operates within its means.

MEDIA CONTACT: sohini@taxpayer.net