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Royalty Payments: Who’s Getting Rich?

by Elizabeth Alford on July 24, 2017

Lots of people are getting rich from oil and gas royalties and Washington is getting its share.

Related: North Dakota Fighting for Millions in Royalties

Receiving royalties from oil and gas activity can be lucrative. An estimated $22 billion was paid out in royalties to private mineral rights owners in 2013.

A new study by the Government Accountability Office reports that the federal government is also making a nice payback from oil and gas activity. In 2016, the government collected $2.5 billion in revenue from onshore oil, gas, and coal production on federal lands. The amount includes about $2 billion from royalty payments.

The study explored the impact of possibly raising federal royalty rates. Currently, the federal royalty rate is 12.5 percent but if increased, could raise revenue significantly.

One of the studies suggested that raising the royalty rate to 17 percent or 29 percent might increase federal revenue by up to $365 million per year after 2025. The other study suggested that increasing the effective rate could bring in an additional $141 million per year in royalty revenue. Stakeholders GAO interviewed cited other factors that could influence the extent to which raising federal royalty rates could increase revenues—in particular, how bonus bids, another revenue source, could be affected. Some of the stakeholders stated that companies would be more likely to offer lower bids to obtain a lease for the rights to extract resources if they had to pay higher royalties.

Just days before President Obama left office, he released new shale regulations establishing minimum royalty rates and giving the Secretary of the Interior discretion for increases. The ruling is designed to protect the environment and ensure that taxpayers are fairly compensated, should shale on federal lands ever be drilling commercially.

Read more at gao.gov.

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