Hastening to approve relief for oil companies after the price crash, the U.S. Bureau of Land Management (BLM) adopted an unclear policy for temporary royalty relief on federal lands. But that relief was inconsistently applied across states, the nonpartisan Government Accountability Office (GAO) said in a report this week.
The BLM implemented a policy in March aimed to prevent oil and gas wells from being shut down in a way that could lead to permanent losses of recoverable oil and gas, but that policy is not without controversy. The U.S. Administration had dismissed the idea of an overall blanket royalty rate reduction on federal land and offshore, instead saying that it would consider applications for two-month royalty rate cuts on a case-by-case basis.
The BLM has issued guidance regarding the steps that oil and gas operators can take when applying for a Royalty Rate Reduction (RRR) due to COVID-19 impacts.
According to GAO's report, five BLM state offices received applications for temporary royalty relief for a total of 1,689 oil and gas leases From March between and June. The office approved 581 of these, but the GAO found that the BLM implemented the policy inconsistently.
It is also unclear just how the temporary royalty relief policy has benefited taxpayers or how much in federal revenues have been forgone, the GAO said.
"According to BLM officials, the BLM state offices made inconsistent decisions about approving applications for temporary royalty relief because BLM's temporary policy on royalty relief did not supply sufficient detail to facilitate uniform decision-making among the offices," Frank Rusco, Director for Natural Resources and Environment at GAO, said.
As a whole, actions are needed to improve the BLM's royalty relief policy, according to GAO, which recommended that the Director of the BLM evaluate whether the program met the objective of conserving oil and gas resources from becoming unrecoverable, and how much it cost the federal government. Another recommendation was the update of BLM's 1995 royalty handbook "to provide specific, consistent, and transparent policies and procedures for royalty relief."
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More