Last week the Office of Natural Resources Revenue (ONRR) within the U.S. Department of the Interior (DOI) formally proposed to withdraw a rule for how to value oil, gas, and coal produced from federal lands and waters that was posted on January 15 2021, just five days before the Trump Administration left office. ONRR has been working on the issue almost as long as the agency has existed, and the recent news is just the latest in a string of policy pivots dating back to 2016. The Trump-era rule, referred to as the “2020 Rule,” would have undercut the return to taxpayers on the development of valuable federal resources by nearly $650 million over a decade. Withdrawing the 2020 Rule could mean recouping that revenue and reinstating more reasonable royalty collection standards.

Mineral producers agree to pay federal taxpayers and tribes royalties for the rights to extract valuable resources from public lands and waters. How much producers pay depends on the royalty rate – a set percent of sales revenue agreed to when federal leases are issued – the quantity of resources produced, and how those resources are valued. For example, the royalty rate for most oil and gas leases in the Gulf of Mexico is 18.75%, and if a producer sells one barrel of oil valued at $100, federal taxpayers get $18.75. But if the barrel is valued at $50, federal taxpayers only get $9.38.

The rule in question, known as the Valuation Rule, determines what price should be used to value oil, natural gas, and coal and what costs producers can deduct form that value before royalties are imposed. If a lower price is used, or more costs are deductible, the resource value is diminished and taxpayers get less royalty revenue. The 2020 Rule made a number of policy changes that ONRR estimated at the time would have reduced revenue by $29 million every year (see TCS analysis here). The agency recently revised its estimate of the rule’s cost to $65 million per year. If allowed to stand, the rule would lock in provisions unfairly advantageous to oil gas companies locking in taxpayer losses.

Thankfully, ONRR began reconsidering the 2020 Rule after the Biden Administration took office and delayed its effective date twice while a review was conducted. TCS submitted comments at the time of the first delay encouraging ONRR to repeal the 2020 Rule wholesale, and the agency appears to have agreed that withdrawing the rule would be preferable to trying to amend it with a subsequent rulemaking.

In its filing, ONRR offers several reasons for the proposed withdrawal. Some center on concerns about the rulemaking process for the 2020 Rule similar to concerns that prompted federal judges to throw out other rules made by the Trump Administration.  Importantly for taxpayers, ONRR strongly affirms that the 2020 Rule was a departure from the agency’s core objective: to collect a fair return on federal resources for taxpayers. If the agency keeps that in mind as the withdrawal process continues, taxpayers stand to benefit.