Federal Legislation Would Hike Onshore Royalty Rate

Federal Legislation Would Hike Onshore Royalty Rate
The bill would increase the royalty rate for oil and gas production on federal lands by 50%.

U.S. Sens. Jacky Rosen, D-Nev., and Chuck Grassley, R-Iowa, this week introduced legislation that would increase the royalty rate for oil and gas production on federal lands by 50%.

The proposed “Fair Returns for Public Lands Act” (S.624) would raise the federal onshore royalty rate from 12.5% to 18.75%, which is already the federal offshore royalty rate, according to written statements from Rosen and Grassley’s offices.

“The current federal oil and gas program is broken and fails to protect our public lands and the American people,” commented Rosen. “I’m introducing this bipartisan, common-sense legislation that will require oil and gas companies to pay increased royalties for drilling, ensuring that our state and local governments in Nevada and across the nation receive fair compensation to fund critical education, infrastructure, and public health projects.”

According to information supplied by Rosen and Grassley’s offices, the bill would set a uniform federal 18.75% royalty rate that would apply to new oil and gas leases. The offices noted the bill would also:

  • Raise the oil and gas lease rental rate from $1.50 to $3 per acre for the first five years and from $2 to $5 per acre for the remainder
  • Hike the national minimum bid for oil and gas leases from $2 to $10 per acre, also giving the secretary of the U.S. Department of the Interior discretion to set a higher minimum bid for individual lease sales or lease parcels
  • Increase the rental and royalty rates for all reinstated oil and gas leases, setting a $20-per-acre rental rate and a 25% royalty rate
  • Setting a minimum $15-per-acre fee for expressions of interest, requiring parties seeking to nominate public lands for oil and gas leasing to pay a fee to reimburse administrative costs
  • Require the Interior secretary to adjust these rates for inflation at least every four years
  • Require a three- to five-year study evaluating the Interior Department’s efficacy in implementing the bill.

“Big Oil continues to take advantage of low royalty rates on federal lands,” remarked Grassley. “Congress has not addressed this issue for over 10 years and since then, these oil companies have deprived the treasury and the American people of billions of dollars. This is not right. It’s time for my colleagues in Congress to end this oil company loophole, end the corporate welfare, and bring oil leasing into the 21st century.”

The senators’ offices stated the Mineral Leasing Act of 1920 established a system in which companies could lease public lands to produce oil and gas, noting the royalties and rent that companies pay “have remained essentially unchanged even as the scale of development and profits has grown.” Citing a Congressional Budget Office estimate, the S.624 cosponsors noted the 18.75% onshore royalty rate would raise $200 million in federal revenue over the next decade and return an equivalent amount to the states.

Rosen and Grassley’s legislation won praise from the following organizations:

  • Sierra Club
  • Conservation Lands Foundation
  • Nevada Wildlife Federation
  • Center for Western Priorities
  • Natural Resources Defense Council
  • Western Leaders Network
  • National Parks Conservation Association
  • Vet Voice Foundation
  • Coalition to Protect America’s National Parks
  • Rocky Mountain Farmers Union
  • The Wilderness Society
  • Conservatives for Responsible Stewardship
  • New Mexico Wild
  • New Mexico Voices for Children
  • New Mexico Wildlife Federation.

An organization that represents U.S. oil and gas producers criticized the bill.

“This is another legislative attempt to hinder American natural gas and oil production,” stated Dan Naatz, senior vice president of government relations and political affairs with the Independent Petroleum Association of America (IPAA). “Increased royalties, coupled with new proposals of regulatory overreach, in addition to President Biden’s moratorium on new leasing, is a direct attempt to eliminate federal land production. This does nothing to benefit the state and local communities, or the jobs, that rely on natural gas and oil produced on federal lands.”

As of Friday morning, information about S.624 on the Congress.gov website showed that Grassley was the bill’s only cosponsor – and the only Republican affiliated with the legislation. Three Democrats – U.S. Reps. Katie Porter and Alan Lowenthal of California and Raul Grijalva of Arizona – have introduced companion legislation (H.R. 1517) in the U.S. House of Representatives. No House Republicans were listed as cosponsors of H.R. 1517 as of Friday morning, but five additional Democrats – U.S. Reps. Emanuel Cleaver of Missouri, Barbara Lee of California, Jan Schakowsky of Illinois, Diana DeGette of Colorado, and Betty McCollum of Minnesota – have signed on as cosponsors this week.

To contact the author, email mveazey@rigzone.com. The Congress.gov website provides updated information on S.624 and H.R. 1517.


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