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Interior Dept. wants to lower royalties that offshore oil, coal companies pay


Enlarge / Oil platform in the Gulf of Mexico. There are nearly 5,000 functioning oil platforms in the Gulf of Mexico, and 27,000 abandoned wells. (Photo by: Dave Walsh/VW Pics/UIG via Getty Images)

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Last week the Interior Department’s Royalty Policy Committee issued a recommendation suggesting that Interior Secretary Ryan Zinke lower royalty rates for offshore oil and gas drilling on seabed owned by the US government. If Zinke approves of the recommendation royalties from offshore drilling would drop from 18.75 percent to 12.5 percent, the lowest royalty rate permitted by the federal government.

Given the relatively low price and abundance of oil in the world market today and the expense of executing new offshore drilling operations, the committee’s recommendation could make it more attractive for drilling companies to consider bidding for offshore oil leases. Zinke announced earlier this year that he would make up to 90 percent of US federal waters open to oil drilling, but there has been considerable pushback from states and muted enthusiasm from companies that will have to undertake years of ramp-up before they see marketable oil.

Currently, offshore oil operations on federal lands require that companies pay 18.75 percent in royalties back to the federal government. If Zinke approves of the recommendation, the new royalty rate would not be applied retroactively, according to The Hill. But any new offshore oil drilling contracts would be able to take advantage of the new rate.

Additionally, the Interior Department Royalty Policy Committee (RPC) said that it would consider a recommendation to allow coal mining companies to have a hand in setting the price that determines their royalty rates on federal lands. Such a move would likely make coal mining cheaper and easier. The RPC also recommended that a lease sale for oil drilling rights in the Arctic National Wildlife Refuge take place within two to three years rather than in four years as had been planned.

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The Institute for Policy Integrity, an non-profit group at the New York University School of Law, noted in a statement (PDF) that President George W. Bush raised the royalty rate from 12.5 percent to 18.75 percent in the hopes of raising $8.8 billion over 30 years. The Institute wrote in a statement this week that lowering the royalty rate back down to 12.5 percent “would be an irresponsible change that would deliver an unjustified windfall to private industry at the expense of the public.”

There’s precedent for this within this Administration, however, as the Department of the Interior “lowered the rate for shallow-water drilling to 12.5 percent during a Gulf of Mexico lease sale last summer,” according to the Washington Post.

Secretary Zinke is now authorized to make a decision on royalties, though he must show that they represent fair market value to the American people.

Interior Dept. wants to lower royalties that offshore oil, coal companies pay

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