By Senators Tom Udall and Charles Grassley
One hundred years ago, Congress passed the Mineral Leasing Act of 1920, setting up a system in which companies lease public lands to wrest valuable oil and gas from the ground. In the century since, the royalties and rent that those corporations pay to the American people for access have remained essentially unchanged even as the scale of development and profits has grown hugely.
As senators from different parties, we have our share of policy differences. But we both believe in sticking up for the public interest and the taxpayer. In this case, we agree that oil and gas companies should pay fair market value for the public resources they extract and sell. They aren’t doing that now —not even close— and the American public is the big loser.
That’s why we introduced the Fair Returns for Public Lands Act this year to reform the antiquated law that governs royalties and the leasing of public land. The country’s economy and the oil and gas industries have changed significantly since 1920. Automobiles had just started to replace the horse and buggy, and the oil industry was a relatively new enterprise dominated by the successors of John D. Rockefeller’s Standard Oil. Yet, since then, the federal royalty rate for oil and gas on public lands has remained steady, at a bargain-basement 12.5 percent of the value of what’s extracted.
Our bill would set a uniform federal royalty at 18.75 percent, applied to new leases. The Congressional Budget Office estimated that royalty would raise $200 million in federal revenue over the next 10 years as it is phased in, with an equivalent amount going to the states where the oil or gas is being extracted.
It should be noted that the low rents and royalty rate represent only taxpayers’ initial losses. When a company has finished extracting all the oil and gas it can get from the land, pocketing millions in profits, this broken federal system allows them to close up shop without setting aside sufficient funds for cleaning up the mess they created. This leaves taxpayers on the hook for cleanup costs.
Updating our oil and gas leasing laws is just the first step that the federal government should take to make sure taxpayers get a fair deal while protecting our public lands. We hope our colleagues in Congress agree and move expeditiously to pass our bill before this legislative session ends in January. Senator Tom Udall is a Democrat of New Mexico. Senator Charles Grassley is a Republican of Iowa and chairman of the Senate Finance Committee.