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Trump Administration Offers Energy Companies Steep Royalty Cuts Amid COVID-19 Pandemic

© REUTERS / Jessica LutzChevron oil exploration drilling site near Midland, Texas
Chevron oil exploration drilling site near Midland, Texas - Sputnik International
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In April, the Interior Department’s Bureau of Land Management was cited by The Hill as confirming royalty-rate cuts to oil and gas companies were possible if they could show that otherwise they were not able to successfully operate public energy leases economically or maintain enough staff at drilling sites.

Amid the continuing COVID-19 pandemic and sinking oil prices, US President Donald Trump’s administration has started giving energy companies temporary cuts on royalties and rent they are required to pay for extracting oil and gas on federal lands, reports AP.

Cited government data showed cuts being granted in the standard 12.5 percent royalty rate to as low as 2.5 percent of the value of oil and gas produced by companies in Utah, with further reductions anticipated in the coming days in other, primarily western states, where energy companies extract oil and gas on federal lands.

In Utah the rate cuts reportedly included 76 leases on tens of thousands of acres of public lands.

© AP Photo / Charlie RiedelIn this April 24, 2015 file photo, pumpjacks work in a field near Lovington, N.M. The United States may have reclaimed the title of the world's biggest oil producer sooner than expected
Trump Administration Offers Energy Companies Steep Royalty Cuts Amid COVID-19 Pandemic - Sputnik International
In this April 24, 2015 file photo, pumpjacks work in a field near Lovington, N.M. The United States may have reclaimed the title of the world's biggest oil producer sooner than expected

It has not been forecast how much value the introduced relief will bring companies, as an estimate would depend on amount of fuel extracted by them and overall number of granted relief applications.

Half of the funds acquired through payment of royalties by energy companies are traditionally distributed to states where the oil or gas was extracted, with the nationwide payments totalling $2.9 billion in 2019. Specifically in Utah, the payments reached $94 million.

States with federal energy leases generating significant revenue are New Mexico, North Dakota, California, Colorado, Alaska and Montana.

© AP Photo / U.S. Environmental Protection AgencyOil well on Alaska's frozen North Slope. (File)
Trump Administration Offers Energy Companies Steep Royalty Cuts Amid COVID-19 Pandemic - Sputnik International
Oil well on Alaska's frozen North Slope. (File)

In more pandemic-related moves, AP cites government data as showing Bureau of Land Management officials suspended oil and gas companies’ federal land lease rent payments in 85 cases in Wyoming.

Bureau of Land Management spokesman Chris Tollefson emphasized that all the royalty cuts were of a temporary nature, put in place for a maximum period of 60 days.

The official explained that while there had been calls from some organizations to introduce “blanket relief” for the energy industry, the Interior Department insisted every leaseholder follow the existing regulations.

“These laws and regulations have existed for decades and across multiple administrations… No special circumstances have been granted,'' said Tollefson.

Critics of the move have slammed it as a windfall for the energy industry that would cut federal and state governments out of revenue.

House Natural Resources Committee Chairman, Democrat Raul Grijalva has requested the Government Accountability Office to look into whether the royalty breaks are justified, and assess possible lost revenues.

“I am concerned that in its haste to approve huge numbers of royalty cuts, BLM (the Bureau of Land Management) may not be fully following the requirements in the regulation," said Grijalva.

American Petroleum Institute vice president Lem Smith applauds the current moves, adding that the government is acting in its own rights when waving royalty fees for onshore and offshore oil and gas activity as long as companies meet the required criteria.

The news comes as in April the Interior Department's Bureau of Land Management was reported by The Hill as saying royalty cuts would be implemented through the “established processes” and in a case-by-case scenario, when companies prove they are unable to operate public energy leases economically or struggle to maintain enough employees at drilling sites.

“Entities who believe such relief may be appropriate to promote continued energy production and development can submit an application for relief to the appropriate bureau program,” a spokesperson was cited as saying.
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