WASHINGTON — The Obama administration on Friday took the first formal steps to boost the royalties that energy companies must pay for oil and gas they pull from public lands, angering an industry already reeling from plummeting crude prices.
The Bureau of Land Management's announcement that it will propose changes marks the first major effort in decades to update onshore royalty rates that are among the lowest in the world.
"It's time to have a candid conversation about whether the American taxpayer is getting the right return for the development of oil and gas resources on public lands," said Interior Secretary Sally Jewell.
In unveiling an "advanced notice of proposed rule making" on the subject, the bureau essentially kickstarted a long-planned public conversation about what the government should charge for the oil and gas on federal lands. Those royalty rates are currently locked in at 12.5 percent of the value of the extracted oil and gas — in contrast to the 18.75 percent charged for production from federal offshore leases.
The Government Accountability Office has repeatedly cast that rate as too low — below what many states and private landowners charge, suggesting that companies are paying far less than fair market value for the oil and gas they glean from federal lands.
Matt Lee-Ashley, the director of public lands at the liberal Center for American Progress, called the administration's move "a common sense step toward delivering a fairer return for taxpayers from the oil and gas boom and leveling the playing field within U.S. energy markets."
But oil industry leaders said any royalty hikes onshore could further discourage interest in resources on public lands, building on existing concerns about navigating regulatory mandates and permitting delays on the territory.
"Despite the renaissance on state and private lands, energy production on federal lands has fallen, and yet another set of costly changes to federal rules could drive more economic development and job creation off public lands," said Erik Milito, upstream director for the American Petroleum Institute.
The move comes amid an oil price decline that has already forced capital spending cuts and layoffs nationwide.
"If Interior now chooses to enact higher royalty rates and fees, it will likely result in lower revenue to the American taxpayer because it will accelerate the exit of producers from public lands," said Kathleen Sgamma, vice president of government affairs with the Western Energy Alliance.
The BLM also is inviting public comment on possible other changes to the minimum bids energy companies pay in government auctions for onshore oil and gas leases, the civil penalties that can be imposed for regulatory violations and the financial assurances that guarantee that drilled sites will be properly reclaimed - sealed and restored to the land's original condition — even if a firm goes under.
The current minimum bonding rates and maximum penalties haven't kept up with the times, suggested BLM Director Neil Kornze.
"Today's bonding rates were set when Dwight D. Eisenhower was president," Kornze said. "We are long overdue to consider an update that will help us ensure that oil and gas sites are properly managed and reclaimed and that taxpayers aren't left picking up the tab."
The current minimum acceptable bid in onshore auctions is $2 per acre. Because that is well below the rate at which most tracts sell, Interior officials believe the floor for those bids could be higher.
Rental rates are generally set at $1.50 per acre annually for the first five years of a lease, increasing to $2 per acre for years five through 10.
The public will have 45 days to comment on the possible changes, which have long been foreshadowed by the Obama administration. The next step is for the BLM to formally propose the changes to royalties, rental payments and civil penalties.