Interior to compare U.S. oil-and-gas royalty rates with other countries

The Interior Department on Monday announced it is reviewing whether royalty rates that oil-and-gas producers pay for projects on federal lands and in federal waters are too low.

An upcoming study will examine financial rules for oil-and-gas in other countries and compare them with U.S. practices.

The department, in announcing the study, cited a Government Accountability Office report several years ago that found the U.S. federal government has a lower “government take” than many other oil-and-gas producing countries.

U.S. royalty rates are currently 12.5 percent for onshore federal leases and up to 18.75 percent for offshore tracts.

“The results of this study will enable the Department to ensure that its leasing policies are providing the public a fair return on federally-owned oil and gas resources, while balancing other objectives, including production and environmental stewardship,” states Interior’s announcement of the study.

Two Interior agencies – the Bureau of Land Management and the Minerals Management Service – will jointly contract for the study, which is expected to take nine months once the contract is awarded.

“Comparison of the U.S. government return with that of other countries may reveal the potential for greater revenues to the federal government,” Interior said.

But any potential move to increase rates would likely face industry resistance.

“The more that royalty rates are increased, the more difficult it is going to be to produce American energy,” said Dan Naatz, vice president for federal resources and political affairs with the Independent Petroleum Association of America, adding it would run counter to efforts to increase U.S. energy security.

The Obama administration recently announced plans to allow expanded offshore drilling.