In response to the economic destruction sparked by the COVID-19 pandemic, the Bureau of Land Management is temporarily granting royalty reductions to ailing oil and gas companies operating on federal land.
If a company demonstrates it has endured economic hardship caused by the virus, the bureau will lower rates for mineral royalty payments for 60 days. Royalties are the payments for minerals by an operator extracting oil and gas from public land, according to the Mineral Leasing Act. Typically, operators pay at a rate of 12.5 percent.
As of Friday, the BLM has granted royalty rate reductions on 40 different leases across Wyoming, according to the Star-Tribune’s review of documents on the BLM’s database. The BLM reduced the royalty rates for all approved applicants to 0.5 percent, the lowest amount permitted.
The leases cover over 46,000 acres in Natrona, Niobrara, Crook, Converse and Campbell counties. Thirty-four applications for royalty relief in Wyoming were denied.
The bureau also continues to consider lease suspensions for oil and gas companies affected by the virus in addition to royalty reductions.
Beginning in March, U.S. oil producers started contending with a global price war and a huge glut in supply amid a pandemic that drastically diminished fuel demand. The crash in oil prices, combined with a shortfall in storage, has left the world swimming in oil supply.
The Petroleum Association of Wyoming praised the interim relief, saying it could help jump-start the state’s economy and give energy businesses an opportunity to recover from the pandemic.
Operators are also quick to point out that because of persistently weak market conditions for oil, easing royalty obligations for two months may not be enough to save some oil and gas firms.
The price for oil still remains too low to make it worthwhile for most producers. West Texas Intermediate, the U.S. benchmark for oil, almost broke $40 a barrel Friday. But the realized price for Wyoming sweet crude usually falls even lower than WTI, and operators have shut in wells and laid off workers throughout the spring.
Not every Wyomingite welcomed the royalty reductions, with the announcement immediately drawing criticism from conservation groups and taxpayer advocates. Critics of the aid have accused the BLM of doling out minerals owned by the public at rock-bottom rates, with few returns for taxpayers or states facing colossal revenue deficits. Other conservation organizations encouraged the BLM to instead incentivize and support the country’s transition away from fossil fuels. Taxpayer advocates said the royalty cuts shorted the public proper compensation for the federal minerals, owned by American taxpayers.
Despite the opposition, the BLM staunchly defended its decisions in May, citing the significant precedent for relief programs. According to the Mineral Leasing Act, the Department of Interior secretary has the authority to reduce, waive or suspend royalties.
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