Lawmakers want to reimburse fossil fuel producers to offset fed royalty hike

Some Wyoming lawmakers want to provide a tax refund to fossil fuel producers to help offset a potential federal mineral royalty rate hike.

The Select Federal Natural Resource Management Committee on Thursday unanimously passed the Mineral royalties proportional severance tax relief, version 1.1 bill for introduction to the full Legislature in the upcoming budget session that begins Feb. 14.

Wyoming would dip into the bucket of money earned from state-imposed severance taxes on fossil fuels and write a check to each producer “equal to” a federal royalty rate increase, according to the draft bill. The state would then backfill those severance tax dollars with its share of federal mineral royalty payments. The proposed refund program is based on the expectation that any increase in federal mineral royalty rates would be applied to newly leased federal minerals and not to minerals already under lease and production.

About half the state’s surface and nearly 70% of the underlying mineral estate is federal. Nearly 53% of the state’s annual revenue comes from mining federal coal and extracting federal oil and natural gas, according to the Wyoming Taxpayers Association.

Although an increase in the federal rates could generate more royalty revenue for Wyoming and all American taxpayers, lawmakers worry it would curtail production rates in the state and result in job losses and other ancillary losses that could result in a net-negative economic impact at home. 

The Biden administration in 2021 directed the Interior Department to review its coal-, oil- and gas-leasing programs, including a review of whether it should increase royalty rates. Companies must pay a royalty to the federal government for the right to extract and sell minerals from federal lands.

The federal mineral royalty rate is 12.5% of estimated value for coal, oil and gas. A little less than half the federal revenue generated from the payments is directed back to the state of origin. For Wyoming, that amounts to hundreds of millions of dollars each year.

The U.S. Bureau of Land Management is considering raising the royalty rate for oil and gas from 12.5% to about 18%, according to national reports. Although that could mean more revenue for American taxpayers, it could also result in lower production rates in Wyoming. A 2017 report by the Government Accountability Office found that “increasing these rates may slightly decrease production on federal lands. However, it could increase revenue by millions of dollars annually.”

Thursday’s vote advanced a revised version of the bill to outline implementation in more detail. The committee met online, and only one person spoke during public comment.

“We do expect [an increase in federal mineral royalty rates] to happen,” Petroleum Association of Wyoming President Pete Obermueller said. “The state’s willingness to try to keep Wyoming competitive in that sort of scenario is noted and very much appreciated.”