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Critics Say More Oil Industry Royalties Should Go Into U.S. Coffers


The U.S. government collects billions of dollars a year in royalties from the oil industry for drilling on public land. It's one of the largest sources of federal revenue after taxes, but critics say the government is still getting shortchanged. NPR's Jeff Brady reports.

JEFF BRADY, BYLINE: When oil companies drill a well, sometimes they don't have the pipelines necessary to send all the natural gas coming off that well to market. So they're allowed to just release it into the air or burn it. In places like North Dakota where oil drilling booms are underway, you can see these flares all over the place. When drillers get rid of gas like this, they don't have to pay a royalty to the government. Taxpayers for Common Sense President Ryan Alexander says this amounts to a subsidy and a big waste.

RYAN ALEXANDER: That you would simply just let it go instead of stepping back and figuring out a way to make sure that you capture that and, you know, get it to market, eventually get a royalty for it in the case of the federal taxpayer is kind of mind-boggling.

BRADY: The U.S. Bureau of Land Management is working on a proposed rule that would reduce venting and flaring. The BLM also is looking at another issue Alexander's group has raised - drillers are allowed to use gas for power at the well site without paying any royalties. Alexander says both of these subsidies add up to a lot of money.

ALEXANDER: We found that over the period of eight years, there was about $380 million worth of methane that was released or used by natural gas operators.

BRADY: While that is a lot of money, Kathleen Sgamma with the industry group Western Energy Alliance says it's a very small part of the $20 billion in oil and gas royalties the government collected over that period. Sgamma says on private land, it's common practice for drillers to use royalty-free gas. And she says much of the flaring happens because drillers are going after oil, which fetches a much higher price than natural gas.

KATHLEEN SGAMMA: We don't want to hold up that oil production because we have a need for American-produced oil. We're still importing some from overseas, thankfully a lot less than we used to, but we have a glut of natural gas.

BRADY: The BLM is putting together a proposed rule now. A final rule is expected in about a year and half. Jeff Brady, NPR News. Transcript provided by NPR, Copyright NPR.

Corrected: November 25, 2014 at 11:00 PM CST
There was an incorrect figure in the original version of this report. The $380 million worth of methane released or used by natural gas operators over an eight-year period was equal to about 1.9 percent of the oil and gas royalties collected by the federal government. It was not .019 percent.
Jeff Brady is a National Desk Correspondent based in Philadelphia, where he covers energy issues and climate change. Brady helped establish NPR's environment and energy collaborative which brings together NPR and Member station reporters from across the country to cover the big stories involving the natural world.