Trump Tells Aides He Opposes Cutting Oil Company Royalties

(Bloomberg) -- President Donald Trump has told aides he doesn’t support a broad plan to temporarily stop charging energy companies royalties for oil and gas produced on federal lands and waters, according to two people familiar with the matter.

Trump ruled out a wide-ranging royalty relief proposal during a White House meeting Tuesday, according to the people, who asked not to be named describing a private discussion.

Congressional and oil industry champions of the idea will continue pushing for a narrower, offshore-only focused approach, arguing it is necessary to keep Gulf of Mexico oil producers in business amid an epic downturn in demand. Trump has been known to change his mind on energy policy matters before, and the president’s verdict Tuesday may not be his final decision.

A top administration concern has been protecting the budgets of states such as Wyoming, New Mexico and Utah that are reliant on a 50% share of royalties tied to oil and gas production on federal lands within their borders. Already, some New Mexico lawmakers have called for a special legislative session to reconsider the state budget as revenue tied to oil production has cratered along with the price of crude.

Administration officials also have voiced concerns about doing anything that would appear to be a bailout for big oil companies.

The White House did not comment on the matter.

The Interior Department, in an email, said companies may apply for a suspension of lease requirements under an established procedure. “Such requests may be granted in cases where an operator is prevented from operating or producing on a lease for reasons beyond or outside their control,” Interior said.

The issue is tethered to broader Trump administration talks aimed at encouraging Saudi Arabia and Russia to dial down oil production. While Trump lacks any broad authority to mandate nationwide oil production cuts -- something other countries may seek as part of a deal -- he can still argue that U.S. crude output is declining naturally and that he hasn’t given domestic producers any special favors in the meantime.

Royalty relief proponents see an opening to push a narrower, offshore-focused plan that targets royalty relief to smaller, independent companies. The Gulf of Mexico alone is responsible for about 15% of total U.S. crude production. Drilling advocates have warned that a wave of bankruptcies among independent oil producers in the basin could permanently stop production at some wells.

Oil companies plumbing the Gulf of Mexico, including Fieldwood Energy LLC, Arena Energy LP, Talos Energy and LLOG Exploration Co., have sought royalty waivers and lease extensions to help them ride the rout triggered by falling crude demand from the coronavirus outbreak and a price war between Russia and Saudi Arabia.

Dozens of Republican lawmakers are lobbying for the idea, including House minority whip Steve Scalise of Louisiana. Republican Senators Bill Cassidy and John Kennedy of Louisiana also have personally pressed Bernhardt for “immediate and decisive action.”

The idea has relatively modest support, with 24% of 1,000 Americans surveyed by Brunswick Group late March saying they back reducing royalties.

Onshore, companies generally pay the federal government 12.5% of the value of the oil and gas they extract from federal lands. Half of that then goes back to the state in which the lease is located -- except for Alaska, which historically has collected a 90% share because it doesn’t tap into a separate national fund to clean up old oil and gas sites.

The situation is far different in U.S. Gulf of Mexico waters, where royalty rates are generally higher -- as much as 18.75% -- but nearby coastal states get an even smaller take of the revenue. Gulf states generally can collect up to 37.5% of revenues from selected leases off their coasts.

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