Some Wyoming lawmakers want to provide a tax refund to fossil fuel producers to help offset a potential federal mineral royalty rate hike.
The Select Federal Natural Resource Management Committee on Thursday unanimously passed the Mineral royalties proportional severance tax relief, version 1.1 bill for introduction to the full Legislature in the upcoming budget session that begins Feb. 14.
Wyoming would dip into the bucket of money earned from state-imposed severance taxes on fossil fuels and write a check to each producer “equal to” a federal royalty rate increase, according to the draft bill. The state would then backfill those severance tax dollars with its share of federal mineral royalty payments. The proposed refund program is based on the expectation that any increase in federal mineral royalty rates would be applied to newly leased federal minerals and not to minerals already under lease and production.
Why it matters
About half the state’s surface and nearly 70% of the underlying mineral estate is federal. Nearly 53% of the state’s annual revenue comes from mining federal coal and extracting federal oil and natural gas, according to the Wyoming Taxpayers Association.
Although an increase in the federal rates could generate more royalty revenue for Wyoming and all American taxpayers, lawmakers worry it would curtail production rates in the state and result in job losses and other ancillary losses that could result in a net-negative economic impact at home.
History
The Biden administration in 2021 directed the Interior Department to review its coal-, oil- and gas-leasing programs, including a review of whether it should increase royalty rates. Companies must pay a royalty to the federal government for the right to extract and sell minerals from federal lands.
The federal mineral royalty rate is 12.5% of estimated value for coal, oil and gas. A little less than half the federal revenue generated from the payments is directed back to the state of origin. For Wyoming, that amounts to hundreds of millions of dollars each year.
The U.S. Bureau of Land Management is considering raising the royalty rate for oil and gas from 12.5% to about 18%, according to national reports. Although that could mean more revenue for American taxpayers, it could also result in lower production rates in Wyoming. A 2017 report by the Government Accountability Office found that “increasing these rates may slightly decrease production on federal lands. However, it could increase revenue by millions of dollars annually.”
Who said what
Thursday’s vote advanced a revised version of the bill to outline implementation in more detail. The committee met online, and only one person spoke during public comment.
“We do expect [an increase in federal mineral royalty rates] to happen,” Petroleum Association of Wyoming President Pete Obermueller said. “The state’s willingness to try to keep Wyoming competitive in that sort of scenario is noted and very much appreciated.”
Now I know who “owns” WY. Thanks.
I’ve always believed that mineral royalty fees were a pass-through cost for the extractor , not a production expense that cuts into gross/net revenue (and by default the profits). The Consumer always pays the corporate taxes and royalties in the end.
At face value , this reimbursement proposal looks more like state sanctioned graft. Even with the fossil fuel downturn, the mineral industry still has Wyoming government on a short leash. No news there.
howdy neighbor,
i agree with Thomas T, it is time to name names, we have had enough of “people are saying” and i would suggest we put the pressure directly on that group of the significantly misguided, bless their hearts.
here in sublette county we have allowed big gas to pump a billions of gallons of a “secret sauce” of chemicals deep into the strata of our back yard with little over site when it was boom time, but our county commissioners certainly don’t have the spunk to stand up to big gas when the market is flat and they ask for a deferment of payments due because the don’t have the money now, never mind they literally made billions of dollars out of our back yard. but that is not the worst part, our gas companies of changed names some many times, through bankruptcies, mergers, acquisitions, reorganizations who knows who will be responsible when there is a need for a major environmental clean up as the powder river basin is facing now.
and let’s not forget our 3 federal representative knuckleheads who gave the latest owners of the trona patch a royalty rate discount from 6% to 2% for 10 years. in case you may be unfamiliar trona of sweetwater county, wyoming has the largest trona reserves in the world and is wyoming’s largest export.
wyoming needs to move up the value chain and sell our natural resources at the appropriate price regardless of whose land it lies beneath, state, federal or private. why do need to position ourselves as the low cost supplier?
man camps do not equal communities. we are bleeding young people as the compromised last census would suggest and we have little representation at any level that has a forward vision.
what has our representation accomplished this year? no expansion of medicaid, no serious consideration of medical marijuana, suing the US government about the limitation of new oil and gas leases when we have 11,000,000 acres already leased with no action and let’s not forget the drama behind the big effort to correct non existent voter fraud and now subsidize the oil, gas and coal through royalty reductions and tax breaks, hmm sounds a bit like corporate socialism.
name the names and call out the stupidity directly when and where it occurs.
Worded perfectly, thanks!
Let’s see. We allow operators to dump produced water into our streams and on top of that relax disposed water quality requirements so operations cost less. Now, let’s cut royalty payments too.
We need a better overall plan for our extraction businesses. Private leases typically are 25% royalty and many producing states are mostly private. Why is 18% royalty on federal leases going to make Wyoming uncompetitive? Perhaps it might be wise to wait and see if operators flee the state?
Is there a list of sponsors available?
Interesting concept. I wonder if they state will have to provide the same benefit for all taxpayers. If the tax on fuel goes up will they have to reimburse every citizen for the increased price at the pump? If my federal income tax goes up are they going to have to reimburse me for that increase? Of course we can’t expect the majority party to pass on an opportunity to increase corporate welfare, especially when they can cut spending on education and social programs to fund it.
We continue to be stuck in the same rut. We should be giving small businesses breaks rather than continuing to give our assets away to companies who don’t necessarily want to see Wyoming grow in other ways. Other businesses, that may actually contribute to Wyoming’s economy could use funds tha, in this effort, are being squandered.
Why not pay all of coal’s taxes. It is not beyond our legislature to find other monies to give away to coal as mines abandon self-bonding and go into bankruptcy. Public education is a low hanging fruit. Time’s a-wastin’.
When a company bids or makes an offer to buy a state, fee or federal oil and gas lease from a government agency or a private individual that owns the lease, the bid amount reflects the royalty rate, the term length of the lease (3 year, 5 year, 10 year), the annual rental, state and federal tax rates and mainly the geology/reservoir quality/risk of the parcel.
If you increase the royalty rate or decrease the term length of the lease, the buyer will offer less money to buy the lease.
The federal government will get less initial lease bonus if they raise the royalty rates. The state of Wyoming does not need to compensate the buyers with a refund. The buyers are compensated by paying less for the lease.
Quite often the initial buyer of the federal lease flips or sells the lease to another company that eventually drills the lease. The initial buyer usually reserves an overriding royalty (ORRI) on the flipped lease. The amount of the ORRI takes the total royalty rate up to what private leases and state leases are currently charging. Why does the legislature think the feds should have a lower royalty rate than state leases?
The royalty rate on State lands in Wyoming is 16.67%. Why is that okay for the State and not for the feds? This proposal is a gift to the oil and gas industry at a time when it plainly does not need it. See https://www.theguardian.com/business/2021/dec/06/oil-companies-profits-exxon-chevron-shell-exclusive
Unbelievable.
What a crazy idea. Wasting Wyoming’s money again. Republicans foam at the mouth about Democrats spending! This is corporate welfare pure and simple. The hypocrisy is thick as Wyoming spring time mud!
On of the single dumbest ideas they have ever attempted. Want to keep job? Try other energy sources, give some real thought to thorium reactors. Get more splat and wind projects going. I question if they even know that you want to carbon ca-tire. Fin but don’t stick in a hole! Make some products out of it and build something useful and beatiful!
Just what we need !!!! subsidies from WY to the fossil fuel industry.
Its appalling how WY legislators think. They are stuck in the past and cant seem to get past the reality that WY cannot participate in the future, a non fossil fuel future, without investment in it. Subsidy to yesterday is not a path to tomorrow!
So this is the equivalent of someone handing out money at the gas pump to compensate for price hikes. Wait don’t we, the people of Wyoming, need those funds for schools and roads.