The Bureau of Land Management office in Colorado approved one-fifth as many requests for reduced oil and gas royalties early in the pandemic as its counterpart in Wyoming, and 19 times fewer requests than the office in Montana and the Dakotas.

”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,” concluded a report released in early October from the U.S. Government Accountability Office. The agency performs spending audits for Congress. 

BLM oversees approximately 700 million acres of subsurface mineral rights, 26 million of which saw active oil and gas production in 2018. Companies generally pay 12.5% in royalties to the U.S. Department of the Interior based on the value of fuel produced. Revenues are divided almost equally between the federal government and the states where extraction occurs.

The BLM is able to reduce royalty rates if doing so is necessary for a company to fulfill the terms of its lease, and the bureau implemented a 60-day program earlier this year for that purpose. Between March 24 and June 11, BLM offices in Colorado, Wyoming, New Mexico, Utah and Montana/the Dakotas received nearly 1,700 applications for temporary royalty relief due to falling oil prices during the COVID-19 pandemic.

The GAO discovered that in those five states, where 94% of oil and gas production on federal lands occurs, BLM approved reductions in 581 cases. The bureau’s temporary policy allowed relief for 60 days, and rates dropped to less than 1% on average.

Wyoming’s office had close to 1,400 applications, of which it approved 28%. Utah approved 71% and the office of Montana and the Dakotas approved 95%. By contrast, New Mexico did not approve either of its two applications and Colorado, with slightly more applications than Montana and the Dakotas, only approved 5%. 

The GAO report criticized BLM for failing to establish through its policy that oil and gas operators actually require the relief to sustain long-term production. The office pointed out that companies may in fact continue to operate wells during price drops because of the costs incurred in halting and restarting production.

“BLM could not determine whether the companies that received royalty relief under the temporary policy would have shut down their wells without royalty relief. As a result, royalty relief may have gone to companies that would not have shut down their wells without the relief,” the report explained. “In such cases, BLM’s temporary royalty relief cost the federal government and states in forgone revenues but may not have had the effect of keeping wells operating and preventing the loss of unrecoverable oil and gas resources.”

BLM spokesperson Derrick Henry refused to disclose the Colorado office’s policy for evaluating relief requests, and did not provide the precise number of approvals and denials. Instead, the bureau issued a statement blaming GAO for failing to work with BLM “in good faith.”

“The BLM State Offices only approved suspension of operations and royalty rate reduction applications for up to 60 days when it was legally permissible, in the best interest of the United States, and when it would encourage the greatest ultimate recovery of our natural resources,” read the statement from Henry, in part.

Kathleen Sgamma, president of the Western Energy Alliance, agreed with the GAO that administration of the royalty relief program was “sporadic.”

“Companies in Colorado that legitimately sought relief were denied,” she said. “Inconsistent implementation across BLM state offices is pretty common, but since it was only a two month program, there wasn’t time to make adjustments. Once it was recognized the program was being applied differently, it was over.”

Sgamma added that she had no specific information about her member companies’ applications, but spoke with companies prior to testifying to Congress on Oct. 6 about her support for the relief program.