The Trump administration is finalizing a rule that will lessen the amount of money oil and gas companies that drill on public lands and in public waters pay to the federal government.
The rule will make changes to the way that these royalties are calculated and, according to the administration, is expected to result in an annual decrease of $28.9 million in royalty collections.
The rule, promulgated by the Interior Department’s Office of Natural Resources Revenue, notes that this figure is less than 0.5 percent of the total federal oil and gas royalties it collected in 2018.
The industry has argued that a previous rule on how the royalties are calculated was burdensome and created uncertainties.
Opponents of the changes, however, argue that the new rule helps fossil fuel companies and harms taxpayers.
“This is a blatant attempt to reopen loopholes for the oil and gas industry and allow them to skirt royalty payments owed to American taxpayers for publicly owned resources,” said Jesse Prentice-Dunn, the policy director at the Center for Western Priorities.
“It’s just an open and shut case of delivering benefits to the oil and gas industry at the expense of the American people,” Prentice-Dunn added.
The rule allows companies that extract oil and gas from water that’s 200 meters deep or more to deduct certain costs. It will also allow the consideration of mitigating circumstances when royalty payments are late.
The rule would also use the average weekly benchmark price for the commodities rather than the highest weekly benchmark prices to calculate royalty payments for certain sales.
Measures that were previously proposed as part of the rule to remove hard caps on transportation and processing deductions did not make it into the final version, though the department will allow lessees to request allowances for extraordinary processing circumstances.
The rule follows a 2019 letter from an oil and gas industry group seeking changes to the way that the royalties are calculated.
The letter takes issue with matters that were addressed in the new rule, saying that gas benchmark prices were “unattainable” and arguing that subsea extraction requires additional transportation and should thus receive an allowance.
“API strongly urges the Department to consider a new rulemaking to correct these issues and to establish policies that truly do provide valuation simplicity and certainty,” API senior policy adviser Emily Hague wrote at the time.
In a statement after the new rule was released, Hague said it "will spur energy development that benefits American families and strengthens national security. American energy leadership supports millions of American jobs."
The rule is expected to be published in the Federal Register on Friday, and will not take effect for 30 days. This could give the incoming Biden administration the opportunity to delay its implementation.
Updated on Friday at 2:10 p.m.