U.S. royalties on oil and natural gas production are among the lowest in the world, the Government Accountability Office (GAO) said in a report released Friday.
“Results of five studies presented in reports or testimony to the Alaskan state legislature in 2006 indicate that the federal government receives one of the lowest government [revenue] takes among the jurisdictions evaluated,” the GAO report noted. A government “take” is the percentage of the cash flow received from oil or natural gas production, including royalties, bonus bids and taxes.
The 2006 U.S. studies/testimony “show that the United States receives a lower government take from the production of oil in the Gulf of Mexico than do states — such as Colorado, Wyoming, Texas, Oklahoma, California and Louisiana — and many foreign governments,” it said. The studies were performed prior to the Minerals Management Service’s (MMS) announcement this year of an increase in royalty rates to 16.67% from 12.5% for future leases sold in the deepwater regions of the Gulf of Mexico (see Daily GPI, Jan. 10).
The five studies, which were presented during Alaska’s hearings on a new oil and gas production tax in 2006, found that the U.S. government’s take for leases in the Gulf of Mexico deepwater and shallow waters ranged from approximately 37% to 50%. This compared to United Kingdom (52%), Norway (76%), Australia (61%) and Angola (64%). A number of individual states, such as Colorado, Wyoming, Texas, Oklahoma, California and Louisiana, also requested more for their energy resources (between 51% and 57%), the report said.
In 1997, Van Meurs Corp. analyzed 324 fiscal systems in 159 countries. It found that of the 324 fiscal systems, Gulf of Mexico water greater than 800 meters ranked lower than 298 other systems with a federal government take of about 41%, while Gulf of Mexico water between 200 and 400 meters ranked lower than 276 systems with a federal government take of about 47%, according to GAO.
“Increasing royalty rates on future federal oil and gas leases would likely increase the federal government take but by less than the percentage increase in the royalty rate because higher royalty rates would likely reduce some taxes and other fees and may also discourage some development and production,” the GAO said.
The Interior Department’s MMS estimates that the new royalty rate of 16.67% will increase revenue by $4.5 billion over 20 years, but this will be partially offset by revenue losses of $820 million over that time period as a result of reduced rental fees, as well as a 5% decline in production. The higher royalty rate also will bite into the corporate taxes paid by oil and gas companies. “Because the federal government assesses taxes on corporate profits, an increase in royalty rates would raise oil and gas company costs, thereby reducing their profits and, consequently, the corporate income taxes they pay,” the GAO said.
But despite these offsets, “MMS estimates that by 2017 the net increase in total revenue will be substantial” to the U.S. Treasury, the report noted.
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