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GAO Oil/Gas Royalty Report 'Misses the Elephant in the Room,' Analysts Contend

A recent Government Accountability Office (GAO) report that concluded the Interior Department has allowed onshore royalty rates to remain stagnant in recent years "misses the elephant in the room on Interior's oil & gas fiscal system," according to the Institute for Energy Research (IER).

"While the GAO study provided recommendations that are obvious, it did not get at the real issues of why the American taxpayer is not getting his or her adequate return from the public's natural resources," according to an IER analysis of the GAO report.

"The narrow focus of the GAO report did not indicate to the American public that federal bureaucratic red tape is causing the oil and gas industry to look elsewhere for its large investments in oil and gas production infrastructure. Raising the royalty rates on onshore production would not necessarily mean more revenues, at least not as much additional revenues as opening federal lands to oil and gas production would accomplish for the American taxpayer,” the analysis said. “But, even without the additional leasing, much could be accomplished by the federal government speeding up permit processing times comparable to oil and gas-producing states, whose ability to adequately regulate production has been demonstrated for over a century."

IER's own study of the effects of opening federal lands to oil and gas leasing concluded that opening federal lands to oil and gas leasing would generate short-run benefits amounting to $126 billion in annual economic output, $32 billion in annual wages and more than 552,000 jobs. "In the long-term, such changes can be expected to generate an additional $450 billion in annual output, $115 billion in annual wages, and nearly 2 million jobs," according to the report. And IER forecast $10.3 billion annually in state and local tax revenues in the short-run, followed by nearly $35.5 billion annually in the long-run. "Federal revenues will grow similarly, with short-term revenues increasing nearly $24 billion annually in the short-run and almost $86 billion annually in the long-run...substantially larger than the [Congressional Budget Office’s] estimates..."

GAO's 38-page report, which was requested by Sen. Ron Wyden (D-OR), chairman of the Senate Energy and Natural Resources Committee, found that the Interior Department over the past couple of years has taken action, particularly in the offshore, to ensure that taxpayers receive a fair return on oil and natural gas produced on federal lands, but it has not taken similar steps onshore (see Daily GPI, Dec. 18, 2013). The GAO report called on Interior to establish documented procedures for periodically assessing the federal oil and gas fiscal system; and to determine whether and how to change new offshore lease terms.

The GAO report "raises concerns about how well the department has been doing to ensure that taxpayers are getting a fair return for oil and gas development on both offshore and onshore public lands. I think it's fair to say that it is not clear the Interior Department, and especially BLM [Bureau of Land Management], has always kept up with the times," Wyden said last month.

In a letter sent to Wyden Monday, IER President Thomas Pyle called on the lawmaker to double down their efforts and address "the underlying issue of excessive red tape...

"Federal foot-dragging is causing energy developers to look elsewhere, even if they have to pay more. Raising royalty rates may not result in higher revenues, certainly not as much additional revenues as opening federal lands to oil and gas production would accomplish for the American taxpayer. But, even without the additional leasing, much could be accomplished by the federal government simply by speeding up permit processing times comparable to oil and gas-producing states, whose ability to adequately regulate production has been demonstrated for over a century."

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