Oil companies seeking bailout could deprive taxpayers of billions
Companies that met with Trump paid more than $6 billion in royalties over 6 years
Facing historically low oil prices and dwindling demand due to the coronavirus, oil and gas corporations have laid off workers, shut down drill rigs, and slashed stock dividends. The one-two punch comes as the industry has spent a decade racking up immense debt, rarely turning a profit. Now, the oil industry and their allies in Congress are asking the Trump administration for a wish list of rollbacks, from extending the terms of drilling leases and permits to reducing environmental enforcement.
One rollback in particular would deprive states and the federal government of critically needed revenue during the economic downturn — reducing or suspending royalty payments to taxpayers for producing publicly-owned oil and gas. Who would benefit? Oil companies that recently met with President Trump and offshore drillers in the National Ocean Industries Association, a former client of Interior Secretary David Bernhardt.
Currently, companies pay the federal government royalty rates of 12.5% and 18.75% for producing publicly-owned oil and gas on land and offshore, respectively. A portion of those revenues are then distributed to state governments at various rates, depending on where the oil and gas was produced. These royalties generate substantial revenue — in 2019, companies paid $8 billion in oil and gas royalties, according to Interior Department data.
At the same time, these royalty rates are vastly outdated, and lower than the rates charged by leading oil producing states. Texas and New Mexico charge rates of up to 25% and 20%, respectively. Over the last five years, taxpayers could have received more than $10 billion had higher onshore royalty rates been in place.
The industry has long sought to reduce these royalty rates for publicly owned oil and gas. Two years ago, a committee created by Interior Secretary Ryan Zinke and stacked with industry officials recommended dramatically slashing offshore royalty rates from 18.75% to 12.5%. A federal judge found the panel was so stacked with industry officials that it violated the law, ruling the administration could not act on the panel’s recommendations.
Oil corporations meeting with Trump could receive windfall
On Friday, April 3, CEOs of major oil companies, including ExxonMobil and Shell, met with President Trump. Combined, the companies at the meeting paid $6 billion in oil and gas royalties from 2013–2018, the only years for which data is available. Reducing or suspending royalties could save these companies alone hundreds of millions of dollars, at the expense of already strained state budgets.
Offshore drillers asking for royalty reduction could net billions
On March 20, the National Ocean Industries Association, the major trade association representing offshore oil and gas companies and a former client of Interior Secretary Bernhardt, issued a press release applauding members of Congress for a proposal to reduce or suspend royalties, stating, “royalty relief will help preserve American energy competitiveness.” Combined, companies on the board of directors of the National Ocean Industries Association paid $3.8 billion in royalties in 2018 alone, and $19.4 billion from 2013–2018.
While oil companies have a sympathetic ear in Interior Secretary David Bernhardt, a former oil lobbyist, members of the House Natural Resources Committee recently warned that blanket royalty reductions would be illegal. Further, companies are already facing lower royalty payments thanks to the collapsing price of oil. The bottom line — the Trump administration should not use the coronavirus pandemic to bail out the oil industry’s bad business practices and rip off American taxpayers.
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