Reform Federal Oil & Gas Leasing to Get Taxpayers More

Reform Federal Oil & Gas Leasing to Get Taxpayers MoreTaxpayers deserve to get top dollar when oil and gas companies drill on federal lands. Instead, the current system costs us billions of dollars every year.

Energy & Natural Resources,  | Analysis
Jan 25, 2021  | 10 min read | Print Article

Recent Updates

Letter To The Editor of the Wall Street Journal

Read our letter to the editor on why industry does not need more help and why we do not need to expand leasing, especially during the pandemic.

FAQ on recent Executive Orders affecting leasing

READ an explanation of what the recent Executive Order does, or does not do,
with regard to the federal oil and gas leasing system.

Listen to our podcast episode on the issue

The system for leasing federal land for oil and gas development is failing taxpayers.

The status quo is designed to pad drillers’ profit margins, and leaves BILLIONS of dollars on the table for taxpayers. Every new lease signed under these terms is a loss, which is why it’s time to push pause and fix federal oil and gas leasing.

The dirty secret? It’s not that hard. And because half of all revenues are shared with the states, leasing reform would help everyone in these tight budget times. Here’s what’s going on and what can be done better:

Royalties

For every dollar of revenue a producer makes on a barrel of oil, taxpayers get just 12.5¢. That rate of return, or royalty rate, is dramatically lower than what most states charge – Texas charges up to 25%, or double. It’s also well below what we get from a barrel of oil from the Gulf of Mexico – 18.75%. If we had been collecting the offshore rate on every barrel of oil and cubic foot of gas from federal lands over the last decade, taxpayers could’ve gotten up to $12.3 billion more.

Rent

The federal government has been a very lenient landlord and refused to raise rent for leases on federal land for more than 30 years. Because of inflation, taxpayers are getting less than half what we should, and lost roughly $330 million over the last decade. For first year’s rent, producers have to pay just $1.50 an acre. By one estimate, increasing that by $6/acre would raise $230 million in additional revenue over 10 years.

Minimum Bids

Like rent, the minimum amount companies can bid at auctions for federal oil and gas leases hasn’t been updated since 1987. It’s still just $2/acre, and bidders take full advantage. Of the 544,000 acres sold at auction in 2020, roughly 200,000 got the minimum bid. In some states, the vast majority of acres get the minimum bid – Nevada is the worst. We would get millions more per year if the rate was updated.

Noncompetitive Leasing

In 1987, Congress said every oil and gas lease has to be offered in a competitive auction where companies can bid for it. BUT, they left in a loophole: the day after the auction, a company (or land speculator) can avoid paying a bid altogether by submitting a NONcompetitive offer for anything that didn’t sell the day before.

The result was predictable – companies now regularly nominate land they want to lease, sit on their hands during the auction, and swoop in the next day to get the lease without even paying taxpayers the measly $2/acre minimum. Over the last 10 years, 1 million acres – an area roughly the size of Rhode Island – have been leased with no bid.

In one egregious example, one company obtained 228 noncompetitive leases covering 113,000 acres in Montana in 2017 and 2018 (see report at right). By increasing the minimum bid and ending noncompetitive leasing, taxpayers could get $50 million in additional revenue over the next decade.

The Leasing Land Rush

By flooding the market with cheap federal leases over the past few years, the government has driven down bid revenues in auctions across the country. In fact, the average bid reached record lows in 2019 and 2020. The $84/acre average in 2020 was less than a quarter of the 2010-2018 average.

FAQs about the Pause on Federal Oil and Gas Leasing 

Find out more here.

State Impacts

Most federal land and oil and gas production on federal land is concentrated in the West. States where federal land is leased get roughly half of all revenue from the leasing process and production, like auction bids, rent, and royalties. This means that state taxpayers are also losing big because of the current system, and would benefit equally from reforms that bring in more revenue.

Find out about federal leasing and its impact on your state:

ReportLosing on Leasing: How Colorado Loses from Oil and Gas Development on Federal Lands

  • $1.3 Billion in estimated revenue loss under the federal 12.5% royalty, FY2009-2018.
  • $38.5 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018
  • 53% of all parcels sold through competitive auction in FY2019 sold for $10/acre or less.
  • 81,000 acres leased noncompetitively in Colorado, 2009-2018.

The Denver Post: Colorado taxpayers losing out on hundreds of millions of dollars from federal oil, gas leases, says report by advocacy group

ReportMounting Losses: Mismanagement of federal oil and gas leasing costs Montana millions

  • $168 million in estimated revenue loss under the federal 12.5% royalty, FY2009-2018.
  • $56 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018.
  • 36% of all acres leased at auction 2014-2018 sold for $2/acre, the legal minimum.
  • 261,000 acres leased noncompetitively in Montana, 2009-2018.

Billings GazetteGuest view: Outdated tax policies are harming Montanans

ReportGaming the System: How Federal Land Management and Oil and Gas Policies Fail Taxpayers in Nevada

  • $50 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018.
  • 70% of all acres nation-wide leased noncompetitively for oil and gas development in the last decade were in Nevada.
  • 85% of all parcels sold at auction received the minimum bid of $2/acre, 2014-2018.
  • 69 federal oil & gas leases out of the 22,000 authorized since 1953 ever entered production.

The Nevada Independent: Report highlights low-cost federal oil leases amid large Nevada auctions, calls for reform

ReportThe New Mexico Boom That Cost Billions: How Federal Oil and Gas Policies Fail Taxpayers

  • $5.2-5.5 Billion in estimated revenue loss under the federal 12.5% royalty, FY2009-2018.
  • $19 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018.
  • 87 billion cubic feet of federal gas waste, 2008-2017—most in the country

Albuquerque JournalNM losing billions through low BLM royalty rates

Santa Fe New MexicanReport: New Mexico taxpayers missing out on funds from oil and gas projects

ReportGiving It Away: How Utah Loses from Oil and Gas Development on Federal Lands

  • $1.4 Billion in estimated revenue loss under the federal 12.5% royalty, 2008-2017
  • $64 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018.
  • 25% of leases sold for $2 per acre, the legal minimum in 2009-2018.

The Salt Lake Tribune Taxpayers are the big losers in the way feds lease lands in Utah for oil and gas, watchdog group says

ReportWaste in Wyoming: Below-market rates, oil & gas industry giveaways, and billions of dollars in lost revenue.

  • $4 Billion in estimated revenue loss under the federal 12.5% royalty, 2008-2017
  • $120 million in lost rental revenue from outdated rental rates for federal leases, FY2009-2018.
  • 119,287 acres leased noncompetitively in FY2019, the most in 20 years

Casper Star Tribune – Taxpayer advocates call for oil and gas lease reform

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