The Interior Department's Office of Natural Resources Revenue (ONRR) said it is repealing an Obama-era rule that amended how the government calculates royalties for oil, natural gas and coal produced on public and tribal lands and is reverting to previous rules.
In the notice published in Monday's Federal Register, the ONRR said it would repeal the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule, also known as the 2017 Valuation Rule, effective Sept. 6. Interior had proposed the revisions last April in an Advance Notice of Proposed Rulemaking.
"By late January 2017, we recognized that implementing the 2017 Valuation Rule would be contrary to the rule's stated purpose of offering greater simplicity, certainty, clarity, and consistency in product valuation," Interior said. "We also recognized that the defects in the rule were significant enough that implementation could undermine and compromise ONRR's mission to collect, account for, and verify mineral royalties for the United States and its state and tribal partners."
Interior acknowledged that the repeal "will result in decreased royalty collections," which could cost taxpayers $60.1 to $74.8 million annually. But it countered that the tax revenue lost "represents between 0.8-1.0% of the total federal oil, gas, and coal royalties that we collected in 2015."
Several industry organizations, including the American Petroleum Institute (API), the Independent Petroleum Association of America (IPAA) and the National Ocean Industries Association (NOIA), strongly supported the repeal.
"The rule made sweeping changes to the way federal oil and gas royalties are valued without clear or transparent guidelines, creating greater regulatory uncertainty that would, in turn, limit investment on federal lands," IPAA’s Dan Naatz, senior vice president for government relations and political affairs, told NGI on Wednesday. "IPAA member companies rely on predictability and long-term planning when determining multi-million dollar investments. Without a concrete regulatory structure that is consistent and clearly delineated, our members would be left in the dark when it comes to navigating this complicated accounting formula."
NOIA President Randall Luthi concurred. "It's a good start," he told NGI. "This opens the opportunity for new and thoughtful discussion regarding the value of the nation's resources, and to assure the people of the U.S. receive fair and accurate royalties from the production of those resources."
The cases challenging the Obama-era rule are Cloud Peak Energy Inc. et al v. Interior et al [No. 16-cv-315], API v. Interior et al [No. 16-cv-316] and Tri-State Generation and Transmission Association Inc. et al v. Interior et al [No. 16-cv-319]. Judge Nancy Freudenthal is presiding over all three cases.
In February, President Trump signed an executive order requiring every federal agency to establish a regulatory reform task force to identify regulations that should be repealed or modified. At the same time, the ONRR used the Administrative Procedure Act (APA) to issue a stay of the rule, pending three separate legal challenges filed last December in U.S. District Court for the District of Wyoming.
In a letter to Interior Secretary Ryan Zinke in March, Sen. Maria Cantwell (D-WA), the ranking member of the Senate Energy and Natural Resources Committee, said the ONRR violated the APA by enacting the stay, and she urged Zinke to allow the valuation rule to go into effect. Following Interior’s announcement this week, Cantwell blasted the decision.
"The Interior Department admits it is giving away up to $750 million over a decade to private companies making profits on a public resource," Cantwell said. "Suspending this rule was not lawful in the first place, and this repeal violates Interior's obligation to ensure a fair return to taxpayers."
In a blog post last Friday, Greg Zimmerman, deputy director for the Center for Western Priorities, a nonpartisan conservation group, said the repeal amounted to a "$75 million gift" to coal, natural gas and oil producers.
"There may be disagreements over how we strike a balance between energy development and other important uses of public lands, like outdoor recreation and conservation," Zimmerman wrote. "But we should all be able to agree that oil, gas and coal companies should be paying their fair share to taxpayers. Unfortunately, under Secretary Zinke's leadership, we're moving in the wrong direction."