1 year after City Council resolution, oil and gas royalties remain locked at 12.5 percent

One year ago, the Missoula City Council placed its support behind a public resolution urging the Bureau of Land Management to increase its royalty rates for oil and gas drilling on federal public lands.

The effort sought to increase the rates from 12.5 percent – an amount that’s been in place since the 1920s. When the resolution was presented, proponents argued that the rate was too low, robbing taxpayers of millions of dollars in annual revenues that could go to schools and infrastructure needs.

Nearly a year later, not much has changed. An Obama rule that sought to give the Bureau of Land Management flexibility to go above 12.5 percent is now being rescinded, according to the Center for Western Priorities, which presented the resolution to the Missoula City Council last year.

“The Trump administration is proactively leasing as much land as it possibly can over the next three years, at least,” said Greg Zimmerman, the organization’s deputy director. “Each one of those leases that sells in Montana will be offered at 12.5 percent. Oil and gas companies operating in Montana will be paying well below the rates they have to pay on any other type of land when they drill for oil and gas on U.S. public lands.”

Bids on oil and gas leases in Montana netted $666,900 during an auction held last month, according to the Bureau of Land Management. The auction offered 204 parcels covering 99,0000 acres of federal land in the state, though just 55 parcels covering 25,0000 acres were leased.

Al Nash, chief of communications for the BLM’s Montana and Dakota state office, said Monday there are exceptions to the standard 12.5 percent royalty rate.

“In certain circumstances, we can collect more than 12.5 percent, such as when a lease is reinstated,” Nash said. “We can also collect less than 12.5 percent, such as when the minerals are acquired. In addition, the royalty rate on certain old leases is flexible based on production.”

Current regulations guiding the BLM sets a 12.5 percent royalty rate on all leases, including lease exchanges and renewals with several exceptions, such as a 16.5 percent royalty on certain noncompetitive leases.

In order to encourage the greatest recovery of oil or gas, the Secretary of the Interior may also waive, suspend our reduce the royalty owed by a lease. The revenue from the sale of federal leases, along with the 12.5 percent in royalties collected from the production of those leases, is shared between the federal government and the states.

Advocates of increasing the royalty rates say the added revenue would serve the state at a time when it’s facing budget challenges.

“A rule in the later months of the Obama administration gave the BLM the ability to raise royalty rates above 12.5 percent,” said Zimmerman. “What we’ve seen over the last year, the Trump administration has come in and moved to rescind that rule and is in the process of doing that. They’re removing the flexibility from the BLM to give taxpayers their fair share.”

Last year’s resolution passed the Missoula City Council on a 9-1 vote, with former council member Harlan Wells standing in opposition. Wells called the Center for Western Priorities an environmental group looking to block oil and gas production on federal lands.

Wells also contended that raising royalty rates would reduce the amount of revenue received by local government. However, Zimmerman disagreed and said several members of Congress are working to increase the rates.

“It’s one step forward and two steps back, but in Congress, there is interest and excitement of reforming after 100 years these outdated royalties rates,” said Zimmerman. “We’re seeing on every issue, from energy and the environment to immigration and health care, that local officials and local communities are playing an important role in holding the Trump administration accountable.”