The Royalty Policy Committee: What You Need to Know

Jun 4, 2018

Mason Cummings

This week, a federal committee selected by Interior Secretary Ryan Zinke and stacked with industry interests aligned with Interior’s well-known public lands sell out agenda will meet in Albuquerque, New Mexico for the third time since being re-chartered by Secretary Zinke in 2017, to conjure up more ways to exploit public lands for the benefit of fossil fuel interest at the expense of taxpayers, clean air and water and conservation. New Mexico is currently the recipient of the second largest amount of federal royalty revenues and this is an important source of revenue for the state. So, when the RPC makes recommendations to allow more royalty rate exceptions, and to let industry set their own rules, New Mexico feels the impact.

The theme of keeping the public out and industry in will unfortunately continue into this next meeting, with the addition of two folks who have close relations to the Trump administration to closed-door subcommittee meetings and recommendations to cut out public review opportunities, limit evaluation of environmental consequences, and make it easier for companies to be excused from their requirements to pay royalties for offshore drilling. Here’s what you need to know ahead of next week’s meeting:

What is the Royalty Policy Committee?

The Royalty Policy Committee (RPC) was formed to advise the Secretary of the Interior on royalty management issues and protect taxpayers by ensuring the public receives the full value of the natural resources produced from federal lands.

It was established under the Federal Advisory Committee Act (FACA) which, while recognizing the merits of seeking the advice and assistance of our nation's citizens, aims to assure that the advice is relevant, objective, and open to the public, and efficient with appropriate records and within reasonable cost. The FACA requires that committee memberships be "fairly balanced in terms of the points of view represented and the functions to be performed."

What has happened since the last gathering of the RPC?

The last full committee meeting of the RPC was held in Houston, in February, a number of recommendations were put forward. Here are some of the most noteworthy actions that have happened since then:

1. New friends allowed in the room. The Department of the Interior (DOI) has faced significant criticism for making little effort to include the public or taxpayer interests in the committee. In response, DOI has invited the conservative Heritage Foundation and Americans for Tax Reform to attend subcommittee meetings that are otherwise closed to the public. Neither were added to  the full committee or designated alternates nor were they formally named to a subcommittee, as was done for American Petroleum Institute’s Emily Hague. Rather they are both said to be representing the public interest and serving as subject matter experts. Notably, both organizations have nothing on either of their websites about the Royalty Policy Committee or royalty policy matters. Meanwhile, the committee and subcommittees meeting summaries are being posted weeks after the meetings take place, shrouding the process in secrecy and, giving the public little detail into the actions or recommendations that take place.

2. Artic leasing advanced. At the last meeting, the Alaska Specific Workgroup recommended DOI rush to hold a lease sale in the Arctic National Wildlife Refuge. DOI has wasted no time, and in April took its first official step toward holding an oil and gas lease sale on the sensitive coastal plain of the Arctic National Wildlife Refuge by  issuing a notice of intent to begin scoping for an environmental impact statement on the proposed sale.

3. Zinke rejected offshore drilling royalty rate adjustment recommendation. The Offshore Oil & Gas Workgroup made a head-scratching recommendation that DOI lower the royalty rate for offshore drilling to not more than 12.5%, the lowest rate allowed by law. This is significantly lower than the current rate of 18.75% which was established during the administration of former President George W. Bush. After public backlash, Secretary Zinke said he would not move forward with the committee’s recommendation.

4. DOI moved forward rule repeals that will waste taxpayer dollars. The administration put forward a proposal to repeal the Bureau of Land Management’s Methane Waste and Prevention Rule, which was established to reduce wasted natural gas from oil and gas operations on public lands and estimated to save taxpayers $800 million over 10 years. New Mexico Attorney General Hector Balderas is leading a lawsuit against the Department of Interior’s actions to roll back the methane rule. 

What will the RPC be putting forward as recommendations in Albuquerque?

The recommendations the RPC has entertained to date would benefit companies, not taxpayers, and that will continue at the Albuquerque meeting.

1. The BLM  cut out public review opportunities in certain oil and gas drilling decisions by requiring all field offices to issue Categorical Exclusions (CX) from National Environmental Policy Act review. Similar direction to the agency in the mid-2000s led BLM to approve almost 6,900 oil-and-gas-related activities between 2006 and 2008 without environmental review. The Government Accountability Office (GAO) reported that BLM’s use of these categorical exclusions through fiscal year 2008 often did not comply with either the law or BLM’s guidance. Using a CX would forgo environmental analysis and public review and allow the BLM to rubber stamp development quickly without fully considering the impacts. CXs are generally reserved for extreme circumstances where it is unequivocal that environmental analysis is unnecessary.

2. Limit evaluation of environmental consequences from oil and gas development. Limiting analysis of impacts is inconsistent with the requirements of the National Environmental Policy Act to look at the indirect effects and cumulative impacts. Adopting this recommendation would be irresponsible and expose projects to increased legal challenges.

3. Limit environmental review required on wells drilled into federal minerals from private or state land. Existing policy already limits the contexts in which NEPA applies, but also recognizes that the presence of federal minerals may require environmental review, as application of the Endangered Species Act and National Historic Preservation Act. If adopted, important federal interests in protecting air quality, threatened species, and cultural resources would not be analyzed and protected.

4. Yet another recommendation aimed at making it easier for companies to be excused from their requirements to pay royalties for offshore drilling. The proposal is for BLM to consider a broader set of factors when analyzing royalty relief applications. As Secretary Zinke said when rejecting a previous RPC recommendation on offshore royalty rate reduction: “Right now, we can maintain higher royalties from our offshore waters without compromising the record production and record exports our nation is experiencing.” Yet, the industry continues to use the RPC to make proposals to reduce what it pays the American public for its energy without any analysis of how such reductions would affect taxpayers and states who benefit from royalties.

Where are these recommendations coming from?

A committee rigged to favor industry. Little effort has been made to include the public or taxpayer interests in the committee. For example, the Planning, Analysis, & Competitiveness Subcommittee is Co-directed by Randall Luthi, the President of the National Ocean Industries Association which represents “all facets of the domestic offshore energy and related industries” with 300-member companies. Convenient for him, his subcommittee is tasked with making recommendations on offshore drilling royalty rates and reviewing BOEM’s five-year offshore drilling plan - which proposes to open more than 90% of the OCS to leasing.  At this meeting, offshore energy interests will recommend yet another way to reduce their royalty payments for the public’s energy.

What should the Royalty Policy Committee be recommending?

Current leasing and royalty practices are providing hidden subsidies to fossil fuel companies. This contributes to unfair compensation for the American public, and can tie up federal lands, often for decades—which means they’re neither being developed for energy nor managed for other uses that may be even more suitable for those lands, like conservation or recreation.

To encourage DOI to fix some of these problems, The Wilderness Society submitted a petition last fall under the Administrative Procedure Act (APA) asking for reform of the oil and gas leasing program. The APA gives citizens the right to request action from a federal agency to issue, repeal, or amend a rule, and entitles them to a prompt response. However, our petition has gone unanswered from the DOI to date. But, if the Royalty Policy Committee needs a place to start, we recommend they consider our petition, which points out how the current oil and gas leasing system is broken and proposes solutions to protect American taxpayers:

●  Below-market royalty rates. Royalty rates are currently only 12.5 percent, far lower than state and private land rates.

●  Below-market rent. Oil and gas producers pay only a dollar and change annually for each acre leased.

●  Low minimum-lease bids. At just $2 per acre at a sale, these bids allow oil and gas companies to purchase and tie up lands they do not intend to use. A meaningful bid would incentivize purchases where companies intend to generate energy and revenue for the American taxpayer.

●  Inadequate reclamation bonds. These bonds should provide funding for cleaning up the damage to public lands from oil and gas development, but the funds required are nowhere near sufficient.

●  Lengthy and lax lease suspensions. Federal leases are issued for ten years—longer than most leases issued by states or private parties—so the industry already has ample time to develop leased lands. The current system is simply providing even more ways to extend leases without revenue or development.

●  Leasing of low-potential lands. These lands are less likely to be developed.

●  Unjustified reinstatements of lapsed leases. Even after leases are cancelled due to failures to pay rent, it is relatively easy for companies to get them put back in place through a “reinstatement” process, giving them another way to continue to benefit from public lands without either developing energy or providing a return to taxpayers.

 

Alex Thompson
202-429-3940