Taxes on drilling could rise

CASPER — Taxes on oil and gas drilling on federal lands could go up for the first time in a century, the Department of the Interior said Friday. 

On Jan. 27, President Joe Biden signed an executive order pausing federal oil and gas leasing until his administration could complete a comprehensive review of the leasing program. That moratorium was blocked by a federal judge in June, forcing the Bureau of Land Management (BLM) to resume lease sales, but the review — expected in early summer — was not released until Friday. 

The review “found a Federal oil and gas program that fails to provide a fair return to taxpayers, even before factoring in the resulting climate-related costs that must be borne by taxpayers,” the 18-page report reads. It proposes “rebalancing” the program by raising royalty and bonding rates, by modifying lease sales to discourage the practices of speculative leasing and leaving leases undeveloped, and by conducting more stringent internal analysis prior to leasing new parcels.

Today, the royalty rate for oil and gas drilling on federal lands is 12.5%, compared with 16.67% on Wyoming state lands. According to the Government Accountability Office, federal royalties could be increased without significantly impacting production. 

The federal royalty rate hasn’t been updated since the Mineral Leasing Act was passed in 1920, the report found, while minimum bonds, which are used for cleanup if a well is abandoned, haven’t been adjusted for inflation in more than 50 years. 

In Wyoming, the top producer of natural gas on federal lands and the No. 2 federal oil producer, and where operators have been slow to resume production following the pandemic, industry responded with frustration. 

The Petroleum Association of Wyoming (PAW) criticized the report’s “overblown claims” in a statement Friday, arguing that it understates the share of federal revenue that leasing generates and exaggerates the share of BLM lands — about 10% — that leases take up. 

“Wyomingites should take this report for what it is: at best a politically motivated document repeating old anti-development talking points, and at worst a nonsensical screed,” Ryan McConnaughey, director of communications for PAW, said in Friday’s statement. 

Conservation groups, meanwhile, are split on the report. After advocating for years for leasing reform, some are heartened by the recommendations it outlines. 

“Here in Wyoming, it has been routine for the BLM to lease lands that have almost no potential for ever producing oil or gas, in some of our most important wildlife habitat, and in areas with cultural or historic significance,” Alan Rogers, communications director for the Wyoming Outdoor Council, said in a statement. “And we as citizens are getting shortchanged by outdated rental and royalty rates. The changes identified in this report are an important first step and long overdue.” 

But there is one point where other conservation groups and industry align: the lack of specifics included in the relatively brief document. 

Both McConnaughey and Western Energy Alliance president Kathleen Sgamma questioned the significance of the report’s Friday-after-Thanksgiving release, particularly following its roughly five-month delay. 

“It’s nothing but the environmental talking points we’ve heard for years,” Sgamma said. 

Even some of the conservation groups that favor the changes found the report disappointing. A few, including the Sierra Club, denounced its apparent omission of climate change, which is mentioned just twice, and called for a total phase-out of new oil and gas leasing on public lands. Others argued that the increases to royalty and bond rates would be inadequate. 

“While we appreciate Interior’s intentions to reform the federal oil and gas program, we hoped they would suggest more specifics,” Bob LeResche, a Powder River Basin Resource Council board member, said in a statement Monday. “We believe more sweeping change is needed for the people of Wyoming to receive their fair share from sale of these publicly owned resources.”

Before they can be adopted by the Department of the Interior, the report’s recommendations will be subject to BLM rulemaking processes and Congressional action, including Democrats’ reconciliation package, which would allocate billions toward the cleanup of already-abandoned wells as the BLM looks to raise bonds to fund future cleanup.