Another U.S State seeking higher royalty from oil companies

Mar 06, 2023 News

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Kaieteur News – Ohio’s commission in charge of new rules for leasing state lands to oil and gas companies will be pushing for increased royalty rates to at least 12.5%.

Nick Evans for the Ohio Capital Journal reported that the commission will seek legislative tweaks to award leases through bidding and to allow for more lucrative royalties. Ohio is a state in the Midwestern United States.

The Ohio Oil and Gas Land Management Commission introduced its standard lease form at a meeting in February. It was reported that public lands advocates voiced frustrations with the proposed nomination process whereby interested companies select and pursue a given parcel.

Muskingum Watershed Conservancy District (MWCD) Executive Director, Craig Butler, encouraged the commission to look at their operation as a model, but not necessarily an approach to replicate completely. One aspect commissioners picked up on is how the district handles royalties — a share of the operators’ income handed over to land owner.

Among potential legislative changes, Commissioner Matthew Warnock criticized setting the royalty percentage in statute. “Firstly, I think that should be something that gets a bid on as opposed to having just a fixed number in statute,” Warnock argued, “Having it, I think it’s 12.5% right now, making it at least 12.5% so that’s kind of the minimum.”

Picking up on that idea, Commissioner, Michael Wise asked land manager Nate Wilson from the MWCD what they charge in royalties. “We always try to get the most we can,” Wilson said, “so our leases range from 18 to 20%.”

“As we have it right now,” Wise said, “we’re probably leaving dollars on the table.”

Before adjourning, commissioners agreed to charge chair Ryan Richardson with lobbying lawmakers to increase fees for nominating and bidding on a parcel as well as altering the royalty structure to set 12.5% as the floor.

Last month, Kaieteur News reported New Mexico a state in the Southwestern United States, has introduced a bill that could increase the current 20% royalty the state receives from oil and gas companies to 25%.

The Albuquerque Journal reported that the legislative initiative by New Mexico could not only raise the royalty rate for oil and gas produced on state lands but could potentially generate up to US$84M in new annual revenue.

The bill is co-sponsored by three Albuquerque Democrats, Senators Bill Tallman and Harold Pope, and State Representative Debbie Sariñana.

The Journal reported that Tallman told committee members in the February 7 hearing that increasing the royalty rate, which hasn’t changed since the 1970s, would put New Mexico on a par with Texas, which charges 25%.

“Our royalty rate was last updated 50 years ago, but Texas has been at 25% since the 1990s,” Tallman said adding, “… It doesn’t make sense to prohibit the state from charging market rates on our resources.”

The media entity reported that the State Land Office is backing the bill, which would raise the rate only for leases on “premium” land offered in competitive bidding. That refers to the most productive tracts with the highest oil-and-gas reservoirs in terms of volume and value, or the “best of the best,” said Land Office Deputy Commissioner of Operations Sunalei Stewart.

“Regular,” or less productive tracts, would remain at 20%, and only new premium leases would be affected, not existing ones.

It was explained that all additional revenue would flow into the state’s Land Grant Permanent Fund, which provides the lion’s share of trust-based funding for New Mexico’s public schools.

“Companies would get to keep 75% of the resources produced,” Stewart told committee members. “We want school kids to get 25%.” The bill is now in the Senate Tax and Revenue Committee. But it will likely be tabled there temporarily for later review alongside other bills to consider their collective fiscal impact before sending them to a floor vote, Tallman told the Journal. If approved, the bill could generate between $50 million and $84 million in new revenue annually, starting in fiscal year 2025, according to the Legislative Finance Committee’s fiscal impact report.

Importantly, apart from raising the current royalty rate, it would also impose royalties for the first time on natural gas wasted through venting, flaring or leaking. But revenue projections on that provision are unavailable because a new state law prohibits venting and flaring going forward in order to reduce methane emissions to just 2% by 2025. According to the Journal, if the bill advances out of Tax and Revenue, it’s bound to face stiff opposition from industry and from Republican lawmakers.

This move by New Mexico, and Ohio comes at a time when American oil giant, ExxonMobil- the operator of Guyana’s Stabroek Block which has an estimated 11 billion barrels of oil pays a mere 2% royalty to the country. The 2016 deal Guyana signed onto has been heavily criticised as being lopsided and civil society groups and citizens have been calling for a renegotiation of the contract but their calls have fallen on deaf ears thus far.

 

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