Report: Oil exports and higher royalties should go together

WASHINGTON — The Obama administration would shortchange taxpayers if it heeds the oil industry’s calls to lift a 39-year-ban on exporting U.S. crude without first hiking the royalty rate companies pay the government for drilling on federal lands, according to a new report.

Energy companies now pay the government 12.5 percent in royalties for oil and gas produced on federal lands — one of the lowest rates charged in oil-producing nations worldwide, says the white paper set to be released Monday by the Western Values Project.

Canada collects 45 percent of the value of oil and gas production on its federal land, and Venezuela takes in 33.3 percent. U.S. states also charge far more; for instance, the Texas government charges 25 percent for oil and gas production on its land. Colorado, Montana, Utah, Wyoming and other states charge 16.67 to 18.75 percent.

The Western Values Project’s move is the first clear bid by a group to try to leverage the debate over oil exports to tackle other energy policy issues, though some refiners have said any changes to the trade restrictions should be accompanied by greater access to public lands.

The organization, which advocates balancing oil and gas leasing on public lands with conservation and environmental protections, says the issue should be on the table during any discussion about broadening U.S. crude exports.

Languishing rates

Despite recent increases in royalty rates for offshore production in U.S. waters to 18.75 percent, “onshore federal royalty rates continue to languish,” with no substantive changes since the fee was first established 94 years ago, the report said. “Instead of boosting state and national economies, those billions of dollars in potential revenue continue to contribute to industries’ already well-padded bottom line.”

“While oil and gas production booms, an antiquated policy shortchanges American taxpayers,” the group concludes.

Some lawmakers and oil industry representatives are calling on the Obama administration to ease the 39-year-old ban on exporting American crude, broadening existing exceptions for exports to Canada as well as oil produced in Alaska and California.

“If the export ban (were) lifted, a significant contribution to the U.S. energy supply picture could be shipped overseas, resulting in yet another loss for American taxpayers,” the group said. “This potential scenario makes it imperative to put the horse back in front of the cart and resolve the debate over raising royalty rates before the export ban is discussed. Americans need to be ensured a fair share for the development of their oil and gas resources before considering sending those resources elsewhere.”

Proponents say exports are needed to ensure a market for the light, sweet crude flowing out of many U.S. oil wells, since many American refineries are designed to process heavier varieties.

Refineries could invest in more capacity to handle light, sweet American crude, but foreign-owned facilities are unlikely to make those upgrades and stop importing heavier alternatives, even with abundant lighter U.S. supplies.

Discouraging investments

But the Western Values Project argues that relaxing the export ban would discourage much-needed refinery investments, keeping U.S. refineries beholden on heavy crudes even as American oil goes to foreign facilities.

“The limited refining capacity in the U.S. means that this oil, instead of staying in the ground until our refining infrastructure is updated, would be shipped out of the country, refined elsewhere and used elsewhere, with no potential gain for American energy security.”

In December, the Government Accountability Office rapped the Interior Department for moving slowly to address the issue of royalties generally.

Since 2009, at least, the Bureau of Land Management has been mulling new rules that would give the secretary of the Interior Department broad flexibility to revise onshore royalty rates for onshore leases whenever appropriate, the same kind of authority that applies offshore.

That would be a big change from the current approach, which requires a full-scale regulatory rewrite and rule making that can span years.

The GAO, which is Congress’ investigative arm, concluded in May 2007 that the U.S. receives one of the lowest government takes as a percentage of the value of the oil and natural gas produced in the world. A year later, the GAO reported that Interior did not routinely evaluate its oil and gas fiscal system and recommended an independent panel to analyze it.

The industry has resisted efforts to dramatically boost onshore royalty rates and fees for drilling on public lands, arguing that they already pay their fair share.