Trump giveth and taketh away
Oil companies see royalty payments cut, but wind, solar must pay back rent
While oil companies enjoy royalties break, renewables firms are expected to pay rent.
WASHINGTON — The Trump administration is starting to reduce royalty payments and suspend leases for oil companies drilling on federal lands, citing the COVID-19 pandemic, while at the same time imposing retroactive rent on wind and solar generators.
The reported number of oil and gas wells affected by the relief and suspension policies is small, but critics of the policy say that far more applications are pending or will be submitted.
The moves are in line with the stated preferences of President Donald Trump, who has said he does not want “to lose our great oil companies” to the pandemic while disparaging wind turbines and tariffs on solar panels. The Bureau of Land Management, which oversees federally controlled land, argues the actions are in accordance with the law: While the agency has the legal authority to offer short-term relief to oil and gas producers, it is obligated to charge rent to wind and solar firms.
Reducing oil and gas royalties — which nationwide amounted to $3 billion last year — by as much as 80 percent will bear a cost that extends beyond the federal treasury. The payments are shared with the states, so the decisions by the BLM will have an effect on state as well as federal revenue.
“Not only does this boneheaded move shortchange American taxpayers and Western states at the worst possible time, it incentivizes oil production during the worst oil glut in history. That is the absolute last thing the market needs right now,” David Jenkins, president of Conservatives for Responsible Stewardship, said in a statement issued by his group. “This is just another stark example of this administration’s bumbling pandemic response, one that is fiscally irresponsible and tone deaf to the most basic market principles.”
In Utah, 76 wells operated by six different companies have so far been afforded royalty relief by the BLM since late April.
That’s out of 1,498 operating wells there. Data for other states has not yet been posted, and the most recent entry for Utah is dated May 5.
According to BLM guidance, companies seeking relief must show how the pandemic has interfered with their operations.
Royalties on other Utah wells that have been granted relief have been cut to as little as 2.5 percent.
The Salt Lake Tribune reported last week that Republican Gov. Gary Herbert’s Office of Energy Development is taking a cautious approach to the royalty relief, despite the cost to the state, out of concern for the health of the industry.
Relatedly, leases have been suspended for 69 wells in Wyoming. Leaseholders will still have to make payments to the BLM, but in effect they are extending the lease expiration dates.
The BLM has the authority to grant relief within certain guidelines. Its recent decisions do not constitute a bailout, it says.
“These laws and regulations have existed for decades and across multiple administrations, and BLM State Offices are only approving suspension of operations and royalty rate reduction applications when it is in the best interest of conservation to do so or when it would encourage the greatest ultimate recovery of our natural resources,” an agency statement said.
“Applications for relief are reviewed by career experts at the Bureau following longstanding procedures and its laws and regulations. Any relief granted is temporary, for up to 60 days . ... These long-standing processes help ensure America has a stable long-term energy supply and provide long-term value to American taxpayers.”
But even as the BLM is dispensing relief to oil and gas operators, it is sending out bills for retroactive rent payments to wind and solar companies.
For more than a year, the agency had delayed billing companies with wind turbines and solar arrays on federally controlled acres as it reviewed industry complaints that it was charging renewable projects too much for rent. The charges stemmed from a rule change in late 2016 by the Obama administration.
But this month, the BLM ended the rent holiday — effectively hitting solar and wind operators with multimilliondollar bills in the middle of the pandemic-fueled economic downturn.
In a statement, the BLM said it is required by law to collect the rents. The agency added it “continues to engage with the wind and solar industry related to rental rates and responsible development on federal land.”
The billing comes as solar and wind developers struggle to get new work off the ground as factory shutdowns disrupt supply chains the economic downturn dries up investment.
Reducing oil and gas royalties will have an effect on state as well as federal revenue.