End big oil’s public lands rip off

Increased royalty rate for new leases on public lands should be made permanent

June 13, 2022 4:15 am

A view of oil and gas development on Bureau of Land Management lands in Colorado, on Jan. 3, 2015. (Bob Wick/BLM/Public domain)

Colorado’s public lands are part of what makes our state a special place to live and why so many visitors come here from across the world. Unfortunately, the oil and gas industry has been exploiting our public lands using out-of-date leasing rules to rake in profits using a buy-low-and-sell-high business model at the expense of everyday Coloradans.

The federal onshore royalty rate — the amount companies are required to pay for the resources they extract from our public lands when they drill — was put in place over 100 years ago. According to a new report from budget watchdog group Taxpayers for Common Sense, this stagnated rate, set at a minimal 12.5%, has led to our state losing out on up to $371 million in revenue from oil and gas produced on federal lands in Colorado from 2012 to 2021. Nationally, we’ve all missed out on as much as $13.1 billion during this time.


If the Interior Department had updated its outdated royalty rate to 18.75%, which is more in line with the rates many states — including Colorado — charge for resource extraction on state lands, our communities wouldn’t have lost out on critical revenues to fund schools, health care, and infrastructure projects.

The department recently announced that it would resume oil and gas leasing on federal lands, and that any leases sold in the upcoming sales will require an 18.75% royalty rate. Coloradans deserve at least this much for the use of our public lands, and the increased rate will not hinder industry interest as it still lags behind our state rate of 20%.

This is why the increased federal royalty rate that’s being required for the leases sold on Colorado’s public lands this month needs to be made permanent.

Congress and the Interior Department now have the opportunity to protect taxpayers from the greed of these oil CEOs by fixing the outdated system that subsidizes the oil and gas industry.

Raising the rate that oil and gas companies have to pay to drill on our public lands will ensure that Coloradans receive a bigger share when oil companies extract our publicly-owned resources. These companies have been posting enormous profits over the past year, while we’ve been losing out. Increasing the royalty rate for oil and gas development on our public lands will ensure the oil and gas industry isn’t the only one to benefit from the next boom.

While they are making record profits, oil and gas CEOs will falsely claim that this change will end up costing you at the pump. But increasing the federal onshore royalty rate would increase taxpayer revenues without having any impact on retail gasoline prices. We can look at our own state oil and gas policies to understand why: The Colorado State Land Board raised its royalty rate for new oil and gas leases on state lands first from 12.5% to 16.67% in 2011, and then to 20% in 2016, and there’s been no perceptible decrease in desire for state leases or decrease in production since.

Additionally, the Independent Congressional Budget Office found that increasing the onshore royalty rate to 18.75% would generate roughly $400 million in the first decade while the effect on production of oil and gas on federal lands would be “negligible.”

Congress and the Interior Department now have the opportunity to protect taxpayers from the greed of these oil CEOs by fixing the outdated system that subsidizes the oil and gas industry, notably by permanently raising the federal royalty rate. Modernizing the royalty rate will have little or no effect on oil and gas production and Coloradans will finally receive a fairer share of the revenue from drilling on the public lands we all enjoy.


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Pegah Jalali
Pegah Jalali

Pegah Jalali is the environmental policy analyst for the Colorado Fiscal Institute, a nonpartisan, nonprofit organization that advances fiscal and economic policies that promote equity and widespread prosperity.