WASHINGTON, D.C. – Twenty major oil and gas companies exploiting public lands have been allowed to fleece U.S. taxpayers by up to $5.8 billion since 2013 due to below-market royalty rates, according to a new analysis from Public Citizen. The analysis, released as the Biden administration prepares to lease more than 140,000 acres of public lands in western states to oil and gas drilling companies, also found that outdated royalty rates allowed 20 fossil fuel companies to skirt up to $1.3 billion in royalty payments just last year.
For decades, when private companies have leased federal lands to drill for oil and gas, the U.S. Department of the Interior has allowed them to pay an extremely low 12.5% rate on the value of oil and gas produced. The federal rate is far lower than the rates of between 16% and 25% that companies pay when drilling on state-owned lands.
The Biden administration has announced it will use an 18.75% rate — the same rate that oil and gas companies pay for offshore drilling — in new public lands lease sales currently scheduled to start next week. Yet the administration has yet to propose a formal rulemaking to make the higher rate permanent and also ensure that oil and gas companies shoulder the costs of cleaning up old wells.
“While gas prices spike at the pump, these oil and gas drillers are not only squeezing drivers, they are fleecing taxpayers as well,” said Alan Zibel, a research director at Public Citizen. “In a year of record oil profits and inflation, the oil and gas industry is taking advantage of unparalleled tax breaks, subsidies, and exemptions. At the very least, these companies should pay a fair price for the resources they extract from public lands and be forced to cover the cost of environmental cleanup without additional costs to taxpayers.”
“The Biden administration doesn’t need to wait for Congress to act,” said Robert Weissman, president of Public Citizen. “The Interior Department must impose rules that end the practice of allowing the fossil fuel industry to pay artificially low royalty rates for the use of public lands. It also must mandate that oil and gas companies clean up their own mess, rather than leaving the problem to taxpayers.”
The oil and gas industry and their allies in Congress have been ramping up pressure on the Biden administration to expand oil drilling. When fossil fuel companies lease public lands for drilling, they make royalty payments to the federal government based on the sales price of oil or natural gas. For example, if a company sells $1 million of oil in any given month, it would owe the government $125,000 under a 12.5% rate, or $180,750 under an 18.75% rate.
The federal government sends roughly half of these royalties back to oil-producing states. With energy prices soaring, revenue sent back to states has grown significantly over the past 18 months, but is still lower than would be the case if higher royalty rates had been in place over the past decade. Monthly royalty payments to state governments for oil and gas leases grew to more than $300 million in April 2022 from $118 million in January 2020, according to Public Citizen’s analysis of Interior Department data. Disbursements to New Mexico grew to $202 million in April 2022 from about $67 million in January 2020. By holding down royalty rates, officials in Washington have missed an opportunity to generate additional revenue for states.