The Department of Interior (DOI) said last Thursday it disbursed $11.69 billion in fiscal year (FY) 2019 from energy production revenue collected on federal and American Indian-owned lands and offshore areas, a $2.76 billion (31%) increase compared with FY2018.
States received $2.44 billion in disbursements, with another $1 billion going to American Indian Tribes and individual Indian mineral owners, DOI Secretary David Bernhardt said. In addition, $1.76 billion went to the federal Reclamation Fund, $1.0 billion to the Land and Water Conservation Fund, $150 million to the Historic Preservation Fund, and $5.35 billion to the U.S. Treasury.
“The disbursements paid to states and tribes from energy development revenues go right back to the communities where the energy was produced, providing critical funding for schools, public services, conservation improvements, and infrastructure projects that create good-paying American jobs,” Bernhardt said.
DOI’s Office of Natural Resources Revenue (ONRR) disbursed FY2019 energy revenues to 35 states as their cumulative share of revenues collected from oil, gas and mineral production on federal lands within their borders and from offshore oil and gas tracts in federal waters adjacent to their shores.
DOI said the year-to-year increase in disbursements was primarily because of higher production volumes in both oil and natural gas, which more than offset the marginal price decrease.
The disbursements come six months after a federal judge struck down the Trump administration’s repeal of an Obama-era rule that amended how the government calculates royalties for oil, natural gas and coal produced on public and tribal lands.
ONRR finalized the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule, aka the 2017 Valuation Rule in 2016, and it took effect in early 2017. In August 2017, after Trump took office, DOI repealed the rule. In response, attorneys general for California and New Mexico sued, arguing that the administration had violated the Administrative Procedures Act.
Oil and gas produced from DOI-managed public lands and waters supported an estimated $85.4 billion in value added, $139 billion in economic output, and 607,000 jobs, the agency said. Coal produced from DOI-managed public lands supported an estimated $6.5 billion in value added, $11.5 billion in economic output, and 36,000 jobs.
Since 1982, ONRR has disbursed more than $314.7 billion in mineral leasing revenues.
A decade ago, GAO found that DOI might not have been collecting all of the royalties that oil and gas companies owed the federal government. A Government Accountability Office (GAO) review completed earlier this year concluded that while ONRR had tightened its royalty compliance efforts, it could do more to better address payment accuracy.
In a separate announcement, the Government Accountability Office (GAO) said the federal Bureau of Ocean Energy Management (BOEM) “systematically underestimates the value of offshore oil and gas leases, resulting in the government collecting hundreds of millions of dollars less than it could otherwise.”
GAO found that BOEM’s valuation process for offshore oil and gas leases might not fully assure receipt of their fair market value.
“BOEM develops valuations for offshore tracts it assesses to be economically viable — assessments of their fair market value — and awards leases so long as the bid is greater than or equal to BOEM’s valuation,” the GAO report said. “BOEM’s valuations for tracts were generally low relative to industry bids because, according to BOEM officials, they conservatively forecast to account for inherent uncertainties in, among other things, the quantity of oil and gas present as well as exploration and development costs.”
In addition, BOEM’s valuation process uses unreasonably high depreciation and lower valuations that lower its already conservative valuations, GAO said.
GAO recommended that BOEM enlist an independent third party to examine whether the use of delayed valuations assures receiving fair market value, and take steps to ensure its bid valuation process is not biased toward lowering valuations. “Interior disagreed with the first and partially agreed with the second, disagreeing with GAO’s characterization of BOEM’s process,” GAO said.
U.S. crude oil production in the Gulf of Mexico (GOM) hit a record annual level of 1.8 million b/d in 2018, according to the Energy Information Administration, which projects that volumes will continue rising this year and next.
Since President Trump took office, DOI has tried opening more of the offshore by pursuing a strategy of offering every available unleased area in the GOM. But the area-wide auctions, which reversed years of leasing in specific targeted regions, have to date drawn limited interest from oil and gas operators. For example, the last federal offshore auction attracted narrow bids tailored to deepwater areas of the GOM with existing infrastructure.
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