Trump giveth and taketh away

Oil com­pa­nies see roy­alty pay­ments cut, but wind, so­lar must pay back rent

Houston Chronicle Sunday - - BUSINESS - By Will Englund and Dino Gran­doni

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.

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