Requests For Oil And Gas Relief Are Growing In Wyoming

In The NewsRequests For Oil And Gas Relief Are Growing In Wyoming

This article by Cooper McKim first appeared in Wyoming Public Media on May 22, 2020

State and federal agencies are seeing an increase in requests for relief by oil and gas producers in Wyoming. The Bureau of Land Management’s (BLM) online records system finds 69 requests have been approved for lease suspension in May.

Oil and gas producers have also had requests for royalty rate reductions approved by state BLM field offices in the past month, though BLM’s online reporting system doesn’t yet reflect that. Through internal documents, E & E News reported the BLM has received a deluge of requests for royalty relief and lease suspensions. Dan Noble, director of the Wyoming Department of Revenue, said he thinks there has been a significant number of requests from producers at the federal level.

BLM’s online records system currently only reflects 76 royalty relief requests from Utah BLM field offices.

Some federal legislators, taxpayer and environmental advocacy groups are pushing back on federal relief citing the lack of transparency from the BLM in providing concrete data; others are taking issue with employing royalty relief at all, saying it pulls funds from state governments.

At the state level, the Office of State Lands and Investments are also receiving increased requests for relief through rent deferments and reductions, royalty relief, lease suspension, and bond level reductions.

Federal Relief

In April, the BLM released new guidelines for royalty relief and lease suspension due to the COVID-19 pandemic. In a statement, the BLM said, “companies must make specific applications for royalty reductions and show that a reduction is necessary in order for a lease to continue producing.”

The changes came as West Texas Intermediate, a benchmark in oil pricing, hit record low numbers falling briefly into the negatives. In Wyoming, new production has all but stopped with the disappearance of at least 17 rigs since March 1.

According to the BLM’s guidance for royalty relief, a producer has to show it could produce in paying quantities if not for extreme circumstances and that leases are not economic at the current royalty rate.

U.S. Congressmen and Senators had sought the delay or suspension of federal royalty payments in early April. Back then, the Western Governor’s Association pushed back that suspensions or even reductions would be harmful to states’ budgets.

In a statement, the BLM said it resisted calls for blanket relief.

“We have maintained our position of following current practices and providing guidance in how producers would apply within existing regulations. No special circumstances have been granted.”

Right now, royalty rates for onshore drilling sit at 12.5 percent. For Wyoming production on BLM lands, the state receives half of that income. In 2019, the Consensus Revenue Estimating Group projected $639,874,274 of revenue from federal mineral royalties in Wyoming, the highest it had been since 2015.

Steve Degenfelder, land manager for Kirkwood Companies, an oil and gas producer, said he applied for royalty relief in mid-April in Utah and Wyoming and received approvals within the month. The approvals brought royalty rates down from 12.5 percent to 0.5 percent for 60 days with the possibility of extension for up to a year.

He said his company hasn’t had to make lay-offs yet, but that revenue has certainly taken a big hit and this will help.

“Theoretically, you’re gonna add 12 percent of the gross proceeds back to the operator in order to offset costs that are incurred in that production whether those costs are employees or electricity or you know any number of [things],” he said.

Degenfelder said the federal government has an incentive to keep wells active and producing at a lower royalty rate during low prices so the ultimate recovery of the well can be realized without its plugging. He added the application process isn’t as simple as receiving a $1200 stimulus check.

“I think the BLM recognized that they would be under scrutiny with this and wanted to do the proper due diligence in granting this,” he said.

Many environmental and taxpayer advocacy groups argue the royalty relief is actually giving western state’s short-shrift on resources that can’t be regained.

Julia Stuble, Wyoming Public Lands and Energy Associate with the Wilderness Society, said royalty reductions will deprive Wyoming communities of important income.

“Royalty relief now means less cash for Wyoming governments during a public health crisis and down the road. Streets won’t get plowed. Parks won’t get maintained. Police cars won’t get replaced and highways won’t get repaired. This has real impacts on Wyoming people,” she said.

Taxpayers for Common Sense also pushed back on royalty relief saying it goes against BLM’s statutory responsibility to get federal taxpayers a fair return on federally-owned oil and gas.

Degenfelder said royalty payments to Wyoming would be down anyway without production and relief might at least keep producers going long-term.

The other point of contention centers around data transparency. Stuble pointed out that all of the listed requests in the BLM’s online records system for Utah were approved.

“That’s indicative of their case-by-case decision making. I think Wyoming has a lot at risk,” she said.

In a letter, U.S. House Natural Resources Chairman Raùl Grijalva wrote he is also concerned about the lack of data. He said the BLM refused to provide his committee data on the number or identity of applicants, or whether those applications were approved. He requested the Government Accountability Office immediately examine the fiscal impacts of approved rate reductions.

“BLM may not be fully following the requirements in the regulations, which require BLM to make a determination that a royalty reduction is ‘necessary to promote development or that the leases cannot be successfully operated’ under the royalty rate in the lease,” Grijalva wrote.

Requests to the BLM press office and Office of Natural Resources Revenue pointed to the BLM’s online records system, which, as of May 22, shows no requests for royalty relief in Wyoming.

State Relief

The Office of State Lands and Investments (OSLI) has taken a different approach in applying relief to operators on state lands. On the advice of the Board of Land Commissioners, five elected officials including the Governor, the OSLI has been looking at applying administrative relief. That includes accepting requests for bond level reductions, rent deferments or reductions, and lease suspensions.

Jason Crowder, OSLI deputy director, said his office has been getting requests for relief every day and that the majority are for rental deferments. A producer typically pays a rent annually on land that it leases. His office can allow a company to pay some rent now and the rest later.

Crowder said the OSLI hasn’t gotten many royalty reduction requests yet, and that it may not be the best approach compared to other forms of relief. He said one effective form is allowing a company to avoid its “plugging” deadline, where a company would have to abandon the well rather than just suspending production until a later date.

“If a barrel of oil stays in the ground and doesn’t get sold, we don’t take nearly the hit. We can allow that barrel to be sold later. We’re offering that as the first line of relief rather than taking a royalty rate reduction or something like that. Once we sell the barrel of oil, you can’t sell it again,” he said.

Crowder said bonds are particularly important right now. He said if a company stops paying rent or royalties without approval, for example, the OSLI can use the bond to cover that.

He said he’s only had a few conversations about royalty relief, but that there could be a formal request to lower the royalty rate from 16.33 percent down to the statutory minimum of 5 percent.

The Board of Land Commissions will meet June 4, and could discuss that proposal along with the relief requests.

In 2019, Wyoming collected about $139 million in royalties from oil and gas operations on state land.

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