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Trump administration rejected most royalty cut requests from drillers this spring: GAO

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(Reuters) – The Trump administration rejected two-thirds of royalty relief requests from onshore oil and gas companies struggling with fallout from the coronavirus pandemic earlier this year, according to a government watchdog report released on Tuesday.

Bureau of Land Management offices approved 581 out of 1,689 requests for temporary royalty relief between March 24 through June 11 of this year, cutting the rates to an average of less than 1% from 12.5% for 60 days, the analysis by the U.S. Government Accountability Office found.

Companies pay the royalties to drill on federal land.

The report looked at only the five biggest BLM state offices, which together oversee 94% of federal oil and gas production. It estimated that the relief resulted in about $4.5 million of forgone public revenues in May and June.

BLM fielded individual applications for royalty reductions from drillers this past spring after rejecting industry calls for broad cuts to help them grapple with meager energy demand and battered prices caused by the health crisis.

The GAO analysis criticized the BLM for an inconsistent approach to the relief requests from one state to another.

The Montana office, for instance, approved 95% of applications received, while New Mexico received just two requests and rejected both. Wyoming received more than 1,000 applications and approved 28%.

The GAO also faulted the BLM for not requiring companies to show evidence their wells would have been shut without a reduction in royalty rates. “As a result, royalty relief may have gone to companies that would not have shut down their wells without the relief,” the report said.

In a statement, BLM spokesman Derrick Henry said it had only approved royalty rate reductions that were “in the best interest of the United States, and when it would encourage the greatest ultimate recovery of our natural resources.”

The report recommended the agency evaluate the temporary relief program and update a 1995 handbook to provide consistent policies.

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