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

In The NewsTaxpayers are the big losers in the way feds lease lands in Utah for oil and gas, watchdog group says

This article by Brian Maffly first appeared in The Salt Lake Tribune on September 12, 2019

The Bureau of Land Management raised $1.8 billion from its oil and gas program in Utah over the past decade, including $1.5 million this week at an auction in which it offered drilling rights on 182,000 acres.

But a nonpartisan budget watchdog group contends the agency can reap far more if it charged energy developers market rates for the privilege of extracting oil and gas from public lands.

Between 2009 and 2018, the agency would have received $1.4 billion more on its Utah holdings had it charged the same royalty it does for offshore production, according to a report released this week by Taxpayers for Common Sense.

“It’s leaving money on the table for taxpayers, and that’s just never a good idea,” said the group’s president, Ryan Alexander. “We shouldn’t be in the business of essentially giving things away and not getting fair market value for assets that we own as taxpayers.”

Production from federal leases in Utah and other Western states is subject to a 12.5% royalty, sharply less than the 18.75% royalty on offshore production and the 16.66% charged on Utah’s state-owned trust lands.

“There’s no reason why they should be charging less than states, less than offshore,” Alexander said. “There should be parity.”

But Kathleen Sgamma, president of the Western Energy Alliance industry group, called this argument “ridiculous.”

The BLM’s lower royalty “reflects the value of the land and the fact that there’s much more regulatory process put on top of federal lands,” Sgamma said. “So were the regulatory environment more predictable and less onerous, then perhaps a higher royalty rate could be commanded on federal lands. But it’s not.”Article continues below

Operators also pay annual rents of $1.50 per acre, a fee that hasn’t changed in more than 30 years. Were the rate adjusted for inflation, Alexander estimated, the BLM would have collected an additional $64 million during the group’s 10-year study window.

Also during this period, operators on Utah’s federal leases vented or flared 6.4 billion cubic feet of natural gas, yet they were not required to pay a royalty of this wasted resource. Imposing a royalty would have netted another $3.2 million for the federal treasury.

According to the taxpayer group’s analysis, the BLM auctioned leases on 420,000 acres in Utah in 2018, collecting $7.6 million in bids, for an average of $22 an acre. However, many more acres were offered but failed to sell, and some 15,000 acres were subsequently snapped up for $1.50 an acre in noncompetitive offerings.