House Democrats Call for Overhaul of Oil-Leasing Rules

This October 2018 photo shows an oil rig and pump jack in Midland, Texas. (Jacob Ford/Odessa American via AP, File)

WASHINGTON (CN) – Taxpayers lose billions each year in royalties generated from oil and gas leases on public lands while fossil fuel developers reap profits at their expense, but Democrats on Tuesday pushed legislation that would overhaul leasing laws that have not been updated in a century.

This March, for the eighth year in a row, the Government Accountability Office placed the Interior Department’s oil and gas leasing program on its high risk list of federal programs mottled with waste, fraud and abuse.

At the crux of its report was an assessment oft-repeated but largely ignored: Interior’s methods to determine and collect royalties hasn’t been updated since 1920, and with the coal, gas and oil industry in far different shape today than it was a century ago, the time to develop a system that meets energy needs while delivering fair market returns is long overdue.

Dan Bucks, former director of the Montana Department of Revenue, has argued for reforms to the federal leasing system for years and believes fair and environmentally friendly stewardship of public lands is directly tied to equitable, well-regulated permitting between states, federal bodies and would-be private speculators.

Bucks told a House Natural Resources subcommittee Tuesday that the Bureau of Land Management’s failure to raise royalty rates for extraction on public lands above 12.5% has imposed heavy losses to taxpayers over the years.

He argued public lands belong to the people and if an administration wants to develop new wells or mines, then the public must be cut in on those profits.

“Producers are only entitled to a share of oil and gas receipts to cover extraction costs at profit. Extraction costs per unit of production have declined. So rightfully, over time, the producers’ share of receipts should get smaller and the owners’ share should increase through higher royalty rates… The Interior is giving revenue to developers that it should be giving to the people,” Bucks said.

The new royalty rate would ideally be raised from 12.5% to 18.75%, according to analysis conducted by the Congressional Budget Office which found that raising the rate to that level would net $400 million in federal and state income over the next decade.

Several states have raised royalty rates over the federal level and have seen major boons to vital local services and infrastructure as a result. In Texas, for example, the state charges a 25% royalty. In Colorado and New Mexico, the rate is 20% and helped pay for teacher’s raises, and in Louisiana the rate hovers around 23%.

“With the current rate, the Interior is giving away every third barrel of oil and every third cubic foot of natural gas absolutely free of charge in comparison to states with increased rates. Raising rates has taught us it yields more revenue and does not reduce oil and gas production,” Bucks said.

Bills like H.R 4364, called the Bonding Reform and Taxpayer Protection Act of 2019, propose securing rate increases on new leases only while also proposing bond regulation reform for oil and gas developers.

The Government Accountability Office’s report found most bonds held by the Bureau of Land Management are insufficient to reclaim wells on public lands, meaning taxpayers are almost always left on the hook to pay for site maintenance or clean up when a developer goes belly up.

Forty-four percent of all coal produced in the U.S. since 2012 has come from companies that have filed for bankruptcy. Many of those same companies were self-bonded or pool-bonded.

“Under current law, cost of reclamation can be guaranteed through self bonding, but a self bond is merely a promise to pay and is not backed by a surety. That might have made sense when coal companies were some of the most valuable businesses in the world but times have changed,” said Congressman Matt Cartwright, D-Pa.

H.R. 4364, backed by Democrats, also requires states to run studies that determine the solvency of a bond pool every five years and would force developers to fully disclose all available assets and real estate used for bonding purposes.

Ryan Alexander, president of Taxpayers for Common Sense, told lawmakers that three of the nation’s largest coal companies were all self-bonded and all declared bankruptcy in 2015 and 2016.

“The changing nature of the coal industry is volatile. Take a promise to pay based on a snapshot of abalone sheet at a certain time in the past doesn’t make sense,” Alexander said.

Democrats also renewed calls to pass legislation that would reverse the Trump administration’s rollback of methane emission rules. Last month, the Environmental Protection Agency announced its plan to gut methane regulations established under former President Barack Obama.

The rules strengthened federal inspection requirements for methane well, pipelines and storage facilities.

If passed, H.R. 2711, or the Methane Waste Prevention Act, would codify the protections and enhance reporting. According to the bill’s sponsor, Colorado Congresswoman Diana DeGette, it would also reduce overall pollution from emissions.

“None of the regulations will matter if we allow drillers to leak millions of pounds of this highly potent global pollutant into the atmosphere. One pound leaked wipes out the benefit of reducing 80 pounds of carbon dioxide,” DeGette said.

Kim Stevens, a spokesperson for at The Wilderness Society weighed in after Tuesday’s hearing.

“We know that one of the biggest threats to public lands and wildlife is climate change and we need to move off of fossil fuels to truly protect our public lands. But as we work to move forward policies to tackle climate change, an important first step is reigning in virtually unfettered oil and gas development on public lands, and these bills will help accomplish that,” Stevens said.

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