Missoula City Council Calls For Oil and Gas Royalty Increase
By Martin Kidston/Missoula Current
The Missoula City Council on Monday night placed its support behind a public resolution calling on the Bureau of Land Management to increase its royalty rates for oil and gas resources taken off federal public lands.
The resolution's sponsors, including Marilyn Marler, John DiBari and Michelle Cares, said oil and gas royalties charged by the BLM remain locked at a scant 12.5 percent. Montana charges 16.6 percent for oil and gas produced on state lands.
The difference shortchanges taxpayers millions of dollars annually in revenues that could go to schools, roads and other public infrastructure needs.
“Montana is one of the lowest paid (states) in royalties,” said Ward 4 council member Jon Wilkins. “Other states get more than we do. I think it's important that we see an increase in royalty rates and that Montana is treated like other states.”
The resolution passed on a 9-1 vote, with Harlan Wells standing in opposition. Wells called the Center for Western Priorities, which presented the resolution for consideration, an environmental group looking to block oil and gas production on federal lands.
“They understand the basic law of economics – supply and demand,” said Wells. “If you want someone to do less of something, you make it more difficult and raise the cost of doing business.”
Wells contends that raising royalty rates would reduce the amount of revenue received by local government. He said new drilling permits, new wellbores and the number of acres leased has declined in recent years.
“Make no mistake, raising this royalty will reduce the overall money to communities, roads and schools,” Wells said. “That's why I'm fiscally conservative. I don't think you can tax more, or royalty more, so you can spend more.”
According to the resolution's sponsors, the gap between the royalty rates charged on federal versus state land leaves the public at a disadvantage. It effectively shortchanges taxpayers, robbing them of nearly $730 million each year.
What's more, supporters argue, the minimum bid required to obtain public lands in an oil and gas auction stands at $2 per acre. In 2014, they said, oil companies obtained nearly 100,000 acres of public land.
“It's important that local governments receive royalties for oil and gas,” said Ward 3 council member Emily Bentley. “We're essentially subsidizing oil and gas on our public land, and we're not getting a return for it. Local property owners are picking up the tab.”
In a letter issued in April 2015, the Department of Interior and the BLM signaled their intention to consider an increase in royalty rates.
Secretary of the Interior Sally Jewell said the BLM's regulations “have not kept pace” with market conditions. The BLM's existing rules lack the flexibility to offer new competitive leases at higher royalty rates.
The city's resolution supports Jewell's initiative.
“Montana, historically, has had a lot of natural resource extraction for which Montana has not been adequately paid,” said Ward 3 council member Gwen Jones. “Once your resources are gone, you don't have them anymore. This is a finite thing.”
Ward 4 council member John DiBari called the disparity in royalty rates an issue of financial equity.
DiBari said the 12.5 percent charged by the BLM stems from the Warren G. Harding Administration in the 1920s. While rates for offshore drilling were raised during President George W. Bush's time in office to more than 18 percent, onshore rates remain stuck in the past.
“I support the BLM's efforts to undertake rule making to increase the royalty rate for onshore oil and gas,” DiBari said. “The state stands to benefit greatly by a royalty increase.”