U.S. Democrats Warn Against Cut to Offshore Oil Royalties

By Valerie Volcovici WASHINGTON, Feb 27 (Reuters) – Top Democrats on the Senate and House natural resources committees urged the Interior Department on Tuesday to drop a proposed cut to offshore oil and gas royalties, warning such a reduction would shortchange U.S. taxpayers.

The Interior Department’s Royalty Policy Committee is due to evaluate a proposal to lower the royalty rate companies pay on petroleum produced in federal offshore waters to 12.5 percent from 18.75 percent – part of a plan by the Trump administration to encourage more U.S. energy production.

“This proposal would amount to a giveaway to some of the most profitable companies in the world and rob taxpayers of potentially billions of dollars of revenues over the life of the leases,” Senator Maria Cantwell of Washington and Representative Raul Grijalva of Arizona wrote to Interior Secretary Ryan Zinke.

They said in the letter that the royalty committee appointed by Zinke – made up of members from the Interior Department, states, tribes and oil, gas and coal companies – was “stacked with resources extraction interests.”

An Interior Department official did not immediately respond to a request for comment on the letter.

The Western Energy Alliance, which represents oil and gas companies, brushed off arguments that the energy industry did not pay its fair share. “The oil and natural gas industry is the second largest source of revenue to the federal government after the IRS,” the group said in a statement.

Zinke and the Trump administration last year launched the effort to reassess royalty rates, last set by the administration of President George W. Bush, in a bid to boost domestic production of energy resources.

Zinke has also proposed opening up more than 90 percent of offshore waters to drilling by removing protections in the Arctic, Atlantic and Pacific – an idea that has faced pushback from several U.S. coastal governors and which comes amid generally low oil industry demand for offshore leases.

An offshore royalty cut could tempt drillers to bid more aggressively in future lease sales. The proposal is among a number of draft recommendations written by a royalty policy subcommittee at a meeting on Feb. 2.

The royalty committee will also review a proposal that would let coal companies set their own value for coal in royalty calculations, something that would affect the royalty they end up paying on their production from federal lands.

Zinke last year repealed an Obama-era requirement that the royalty be based on market prices for coal. (Reporting by Valerie Volcovici; Editing by Peter Cooney)

(c) Copyright Thomson Reuters 2018.

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