On September 9, the federal government leased 7,895 acres of public land in Colorado for oil and gas development. All parcels offered were sold, but taxpayers lost out.  

The leases were issued at the recently reduced federal royalty rate of 12.5%. Because leases are legally binding for the duration of production, Colorado and U.S. taxpayers are now locked into a century-old rate for decades. The result: an estimated $15.5 million in lost royalty revenue throughout the lifespan of these leases.   

America’s public lands and natural resources belong to taxpayers. The federal government manages oil and gas development on these lands by leasing them to private companies, which extract and sell these resources for profit. In return, taxpayers are supposed to receive:  

• Bids at Auction: upfront payments offered at competitive auction to secure drilling rights  

• Rent: annual payments made until production begins  

• Royalties: a share of the value of extracted oil and gas  

For decades, the federal oil and gas leasing program lagged behind the private market and states. Outdated terms hadn’t even kept pace with inflation. In 2022, long-overdue reforms modernized the system by raising royalty rates, updating fees, and ending giveaways like noncompetitive leasing. But the FY2025 budget reconciliation bill signed into law on July 4, rolled back many of those improvements—slashing the federal royalty rate from 16.67% back to its 1920s rate of 12.5% and reinstating other obsolete provisions. Taxpayers will once again be shortchanged as companies lock in decades of drilling under terms that don’t reflect the true value of America’s oil and gas resources.   

Today’s auction in Colorado leaves millions on the table for taxpayers. All acres offered in the sale were leased, at an average bid of $844 per acre. Though higher than historical averages in the state, this is far below the nationwide average bid per acre last year of $2,149, and below Colorado’s only lease sale of 2024, which offered and leased one parcel for $2,501/acre. 

Between FY2013 and FY2022, Colorado was the country’s third-largest producer of federal gas – behind New Mexico and Wyoming – and sixth-largest producer of federal oil. Competitive lease sales in the state can generate important revenue for both federal and state taxpayers. Under current law, states receive half of all federal receipts from resource development within their borders. But outdated leasing policies now risk forfeiting billions in potential revenue.  

But the July budget reconciliation bill reversed many of the reforms enacted in 2022 under the Inflation Reduction Act. It slashed the onshore royalty rate back to its 1920s level, reinstated noncompetitive leasing, and eliminated a modest fee meant to offset the administrative costs of auction nominations. Making matters worse, the bill expands the frequency and size of lease sales, increasing those costs further.  

Applying a fair, market-based royalty rate is essential to ensuring taxpayers get a reasonable return. Lower royalty rates mean lower revenues. In Colorado alone, taxpayers missed out on $811 million in revenue from FY2013 to FY2022—before the royalty rate was raised. With the new rollback, those losses are set to resume.  

The Bureau of Land Management estimates that the parcels sold today will result in 52 wells. Using average per well production on federal lands in Colorado over the last decade, these parcels could yield 48,700 barrels of oil and 4.2 billion cubic feet of natural gas every year of active production. Based on the White House budget office’s 2025 price projections for crude oil and natural gas—used to estimate federal royalty revenue from onshore leases—the annual production from today’s parcels could be worth roughly $31 million. At the current 12.5% royalty rate, taxpayers would see about $3.9 million in return every year—$1.3 million less than they would under the more competitive 16.67% rate. In total, taxpayers will lose out on around $15.5 million worth of potential royalty revenue throughout the lifespan of these production wells—typically 12 years in Colorado—due to the outdated, below-market rate of 12.5%. While it is unlikely all of the leases issued will enter production, this estimate demonstrates the scale of taxpayer losses under an outdated, below-market rate.  

Colorado can play an important role in American energy production. But for taxpayers to benefit, public resources must be managed responsibly. The oil beneath federal lands belongs to the American people. Fair, competitive leasing—and royalty rates that reflect market value—help ensure those resources aren’t given away for less than they’re worth.