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Utah News

Is It Time To Charge Public Land Drillers More?

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Utah charges a higher royalty rate to drill than the federal government does.

A recent report from the Congressional Budget Office claims that raising the royalty rate on public drilling leases would generate $1.2 billion dollars in revenue. Greg Zimmerman, deputy director with the Center for Western Priorities, said that the states would also benefit from increased rates.

“The revenues that are generated from a lease that’s on U.S. public lands is split approximately 50-50 between the U.S. Treasury and the state where the oil or gas was produced,” Zimmerman said. “The state of Utah has a huge stake in ensuring that these rates are properly set. The CBO report says that over a billion dollars could be generated. An additional billion dollars or so would go to the states.”

The CBO report says that the federal government could bring in over $200 million in the next decade by raising the per-acre fee on idle leases from a dollar and a half to six dollars. Zimmerman said that the current price weakens the incentive to develop the leases.

“It really encourages speculation because what companies are able to do is they’re able to buy up all these leases and then they hold them and they’re paying next to nothing,” he said. “They’re paying less than a cup of coffee per acre of land that they have under lease and so there’s very little incentive to develop the lease, particularly in times of low oil and gas prices. What the CBO report looks at is imposing a six-dollar-per-acre rental fee on non-producing leases which would, in theory, encourage companies to develop them more diligently.”

While the federal government hasn’t changed its royalty rate in almost 100 years, states where drilling takes place on their own land charge a higher fee. Zimmerman said that paying attention to state rates could help find the right amount for the federal government to charge drillers.

“States charge significantly higher royalty rates than are being charged on U.S. public lands,” he said. “In Utah, there’s a 16.67 percent royalty on oil and gas production, in North Dakota it’s 18.75 percent, in Texas it goes as high as 25 percent. Meanwhile, on U.S. public lands, it’s 12 and half percent. A good start would be looking at raising the royalty to what other western states are charging.”  

The federal lands where oil and gas production take place are managed by the Department of the Interior.