The Royalty Policy Committee to Hold its Fourth Meeting

On Thursday, September 13, 2018 the Royalty Policy Committee (RPC) will hold its fourth full committee meeting in Lakewood, Colorado. The RPC is an advisory body tasked with making recommendations to the Secretary of the Interior Ryan Zinke and the department’s sub-agencies concerning royalties collected from federal lands. As the steward of our federal lands, the Department of the Interior (DOI) acts as a landlord tasked with oversight of lessees and the collection of royalties from natural resources extracted by private industry on federal lands and waters.

This will be the first RPC meeting without Vincent DeVito who had been serving as chairman of the committee since its authorization in March of 2017 by Sec. Zinke. Last month DOI announced DeVito would be stepping down from his role as an advisor to Sec. Zinke and will instead be working for Cox Oil Offshore LLC, an offshore oil and gas company.  Scott Angelle Director of the Bureau of Safety and Environmental Enforcement at DOI will be replacing Devito as the Acting Chair for the upcoming committee meeting.

DOI has  preliminary recommendations for the Denver meeting from two of its subcommittees – the Planning, Analysis, & Competitiveness subcommittee and the Fair Return & Value subcommittee – which are both offering two recommendations. These recommendations still need to be approved by the whole committee before becoming official recommendations to DOI.

The Planning, Analysis, & Competitiveness subcommittee recommendations include a request that DOI reinstate requirements from the Federal Oil and Gas Royalty Management Act of 1982, a bill last updated thirty years ago. If adopted by DOI the changes in requirement would mean a decrease in valuable royalty revenues for taxpayers by negatively impacting the timely and complete collection of natural gas revenue.

In its second recommendation, the Planning, Analysis, & Competitiveness subcommittee asks that DOI change how it issues drilling permits for leases which are already producing. Specifically, the subcommittee asks that the Bureau of Land Management (BLM), the agency within DOI responsible for leasing, be allowed a maximum of 45 days to approve a permit. If the BLM does not object within 45 days then the lessee may continue drilling. This is highly problematic for taxpayers. For instance, if the BLM is unable to review the permit within those 45 days, then industry is allowed to drill regardless of any outstanding concerns, including whether the operation will be able to responsibly deliver oil and gas to market and ensure a fair return for taxpayers.

The Fair Return & Value subcommittee recommends DOI implement a replacement for the natural gas portion of the Valuation Rule – which is concerned with the way in which royalties are charged from energy production on federal lands, but was repealed by the current administration before it was allowed to take effect. The subcommittee’s recommendation calls for a system where multiple ways to calculate royalties owed are permitted, and from which the payors or lessees can choose the calculation that suits them best. This system is inherently problematic, as payors or lessees will invariably choose the calculation that provides the lowest values and thus the lowest royalty payments, lowering taxpayer revenues.

The Fair Return & Value subcommittee’s second recommendation asks DOI to release more data on energy production in federal lands and water. The recommendation goes on to talk about the varying levels of detail presented by the various DOI sub-agencies on energy production and the accompanying revenues, calling for greater transparency. Given that TCS has always called for greater transparency in accounting for production on federal lands and the associated royalty payments, we consider this a long overdue recommendation.

The Tribal Energy (formerly Tribal Affairs) subcommittee will not be making recommendations at the upcoming meeting according to the published agenda.

TCS has submitted written comments to the RPC reviewing the current recommendations before the committee and highlighting other royalty and leasing topics the committee should pursue.

Stay tuned for more coverage of the September 13 RPC meeting in Colorado. TCS president Ryan Alexander will be on the ground in Colorado to present her comments to the full Committee.