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Report: U.S. Loses Out on Royalties from Drilling on Public Land

PHOTO: Oil and gas developers don't have to pay royalties on fuel they extract from public lands, including national forests. A new report says that fuel was worth $380 million. Photo by Greg Stotelmyer.
PHOTO: Oil and gas developers don't have to pay royalties on fuel they extract from public lands, including national forests. A new report says that fuel was worth $380 million. Photo by Greg Stotelmyer.
December 12, 2014

BEREA, Ky. - Oil and gas developers are getting a sweet deal for their projects on public land, according to a new report that says taxpayers are losing out as a result.

The group Taxpayers for Common Sense claims the government isn't collecting sufficient royalties because current rules don't charge energy companies for the gas they use at drilling sites or for what is lost through the burn-off process known as flaring.

Ryan Alexander, who heads the watchdog group, said Kentucky's "lost" fuel is almost 2 percent - but in other states, it's much more.

"California was another state where there was really a high percent of gas that was extracted (and) not brought to market," she said. "Seventeen percent of the gas in this eight-year period that was extracted was either used or flared or vented into the atmosphere, and I think that's really troubling numbers."

According to the report, called "Burning Money," from 2006 through 2013, oil and gas companies drilling on federal land either wasted or used gas for free that was worth $380 million. The report recommends updating the rules on royalty payment exceptions that were made in the 1940s.

Jim Scheff, director of the environmental group Kentucky Heartwood, said it's more complicated in Kentucky because the federal government only owns 40 percent of the subsurface mineral rights on the Daniel Boone National Forest. Since the rest is privately owned, Scheff said, the government doesn't have a good handle on the extent of oil and gas development in the forest, which covers 708,000 acres from northeast Kentucky south to the Tennessee border.

"They have a pretty good handle on the amount of federal minerals that have been leased," he said, "but when it comes to the private oil and gas, they really don't know how many wells there are, how many active or abandoned wells."

Scheff said the Forest Service also "has no idea" how many miles of access roads there are.

It's known as "beneficial use" when an energy company powers its own equipment with fuel produced at a well site, and when gas is leaked or flared, it's termed "unavoidably lost." But during the study period, Alexander said, the total amount of gas that operators said they sold decreased by 26 percent - while their "unavoidable losses" increased by 23 percent.

"I think the idea of 'avoidably' or 'unavoidably' lost is a flawed concept," Alexander said. "I think we really need to be thinking about reducing as much waste as possible, and making sure that the taxpayers are being paid for every single ounce of gas that's coming out of public lands."

She added that many people don't realize that royalties are among the biggest sources of revenue for the federal government, after taxes. But, according to Scheff, because most of the mineral rights on the Daniel Boone National Forest are private, the feds have oil and gas leases on only 62,000 acres, or about one-tenth of the public land.

The report is online at taxpayer.net.

Greg Stotelmyer , Public News Service - KY