Report: Colorado lost millions due to ‘lax policies’ for oil and gas development on federal lands

PROMO Energy - Oil Rig Gas Well - iStock - ssuaphoto
Published Wednesday, December 4, 2019

By Derek Draplin | The Center Square

A taxpayer watchdog group says the state of Colorado has lost over $600 million in the last decade because of the federal government's "lax policies" on oil and gas development royalty fees. The industry itself disagrees.

Taxpayers for Common Sense recently released a report claiming that royalty rates for oil and gas development on federal lands managed by the U.S. Bureau of Land Management, which overseas activities on 245 million acres of federal land, are too low.

"Oil and gas companies have avoided paying more than $1.3 billion to taxpayers over the last decade for the right to drill on federal lands in Colorado," the group said in a press release.


PROMO Government - Colorado Capitol Building Denver - iStock - kuosumo
(c) Colorado Capitol Building Denver - iStock - kuosumo

Half of revenue collected from oil and gas development on federal lands goes back to the state government. The BLM has a 12.5 percent royalty rate for onshore oil development and an 18.75 percent royalty rate for offshore oil development, Taxpayers for Common Sense noted.

If the BLM raised the onshore drilling royalty rate to 18.75 percent, the government would have collected $1.3 billion in revenue ($600 million for state government), the report estimated. 

Taxpayers for Common Sense says that the BLM "is failing to ensure taxpayers receive a fair market value for these resource," also citing the agency's outdated policies.

"Colorado taxpayers have lost hundreds of millions of dollars because of outdated federal policies," said Ryan Alexander, the group's president. "That's real money and it's past time to make changes to stop these tremendous losses year after year."

But the Western Energy Alliance, a trade group that represents the oil and gas industry, takes issue with the insinuation that the industry has been skirting higher royalty rates.

"The claim that companies have avoided paying royalties is ridiculous," said Kathleen Sgamma, the Alliance's president. 

Sgamma added that onshore royalty rates are set at the lower 12.5 percent because that type of development is different that offshore development.

"Companies have paid their royalties at the prevailing rate and haven't 'avoided' paying anything," Sgamma said, adding that groups like Taxpayers for Common Sense only care about making oil and gas development on federal lands "so costly that it goes away."

The BLM is required by federal law to offer quarterly lease sales where applicable on land it manages in Colorado. If offered parcels don't receive bids, companies can submit noncompetitive offers.

The report says in the last decade, the federal agency has "issued 129 noncompetitive leases covering 80,750 acres" in the state.

The report also cites Colorado raising the royalty rates in 2016 for oil and gas development on state lands from 16.67 percent to 20 percent, which has resulted in $15 million more in revenue for the state, as a positive "case study."

Taxpayers for Common Sense said the BLM has the statutory authority to raise the royalty rates for oil and gas development on federal lands. may earn an affiliate commission if you purchase products or services through links in an article. Prices, when displayed, are accurate at the time of publication but may change over time. Commissions do not influence editorial independence.