U.S. drops royalty hike plan for some drilling; taxpayers hit: study

Patrick Rucker
Drilling wells are pictured in Los Angeles, California December 11, 2013. REUTERS/Mario Anzuoni

By Patrick Rucker

WASHINGTON (Reuters) - U.S. taxpayers will forgo more than $1 billion in revenue in the next decade now that officials have dropped plans to increase royalty rates for drilling on federal land, a report released on Tuesday concluded.

Officials have for years considered boosting the royalty rate for onshore oil and gas development as a way to protect taxpayers' stake in a domestic energy boom.

But the U.S. Department of the Interior has lately decided to drop those plans, according to a report from the Government Accountability Office, the investigative arm of Congress.

"According to Interior officials, the department does not have enough information to determine how to adjust onshore royalty rates," the GAO said in a study of royalty collections on fossil fuels.

An Interior official said the department was committed to reforming the royalty program "to ensure a fair return to the American taxpayer."

Interior Secretary Sally Jewell, a former chief executive for outdoor retailer REI, has the financial know-how to bring those reforms to life, conservation activists said.

"As the only former CEO in the cabinet, Secretary Jewell can deliver a dose of common sense and business sense to this issue," said Jessica Goad of the Center for American Progress, a liberal think tank that advises the Obama White House.


Advances in drilling technology have unlocked vast fossil fuel deposits in North Dakota, east Texas and elsewhere in recent years, pushing domestic oil and gas production up sharply.

U.S. crude oil output is surging faster than expected and will touch a historic high by 2016, according to data released on Monday by the U.S. Energy Information Administration, part of the Department of Energy.

Drillers now pay a 12.5 percent royalty on oil and gas pulled from federal land. Since 2009, Interior officials have contemplated increasing the government's take to match global standards, according to the GAO report.

Officials last year drafted plans for an 18.75 percent royalty for onshore oil production but decided to put those plans on ice, according to the GAO report.

In Texas, the royalty rate is 25 percent.

"Today's report drives home the point that Interior may not be keeping up with the times," said Senator Ron Wyden, an Oregon Democrat and chairman of the Senate Energy and Natural Resources Committee, who requested the GAO study.

President George W. Bush twice increased royalty rates for drilling in the Gulf of Mexico, and Ken Salazar, President Barack Obama's first Interior secretary, said in 2011 that a boost to onshore royalties was due.

In his 2014 budget proposal, Obama said "adjusting onshore royalty rates" was a priority.

About a third of U.S. oil and gas comes from federal land managed by the Interior Department, and its oversight of energy development has been singled out by the GAO among agencies most vulnerable to fraud, waste or abuse.

(Reporting by Patrick Rucker; Editing by Lisa Von Ahn and Gunna Dickson)