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
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:
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, taxpayers could’ve gotten up to $12.9 billion more over the last decade (FY2012-2021).
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 $400 million in additional revenue over 10 years.
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.
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, more than 2 million acres 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 $100 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.
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: