Wednesday, June 8, 2011

Wyoming needs right return on its oil & gas

State deserves higher royalty rate option
Public hearing June 10 in Cheyenne

Will state get Wyoming residents get what may be their last shot at pursuing a better deal on state oil and gas leases when the State Land Board considers a proposal to revise the state's standard lease form.

The office announced the meeting a week ago:

"A meeting by and between the Office of State Lands & Investments and the Petroleum
Association of Wyoming and other interested parties will be held Friday, June 10, 2011,
2:00-5:00 p.m. The meeting will convene in the Herschler Building, Room 1699 and is
open to the public. The purpose of the meeting is to review and finalize proposed revisions
to the State of Wyoming’s Oil & Gas Lease Form."
Friday June 10 update
This meeting enables the public to hear and comment during the discussion between PAW and the State Lands Office. Even though the royalty rate adjustment has been dropped from the proposed revisions to the lease form, it makes other changes, including in what can be deducted from the costs of production before the royalty is assessed. Deductions mean the producer pays less to royalty holders - in this case, us, the people who live in Wyoming. This is why the industry is fighting this so hard here, even though other producing states are making changes to assure themselves a fair share of value of the oil and gas extracted. And remember:
Once it's gone, it's gone.

The proposed revisions were offered last year, but were postponed after oil and gas industry leaders opposed a proposed increase in the potential state royalty rate, hiking it from 16.667 percent to 18.75 percent. It's important to note that would be the allowable rate, not a mandated rate.

Then Gov. Dave Freudenthal suggested in November that the proposed increase be postponed until Gov.-elect Matt Mead took office. He also said the four other members of the Board of Land Commissioners opposed proceeding with a vote scheduled last Dec. 9.

Secretary of State Max Maxfield opposed the increase. The Associated Press quoted him saying, "We're competitive within the region and I'm satisfied that we are both being fair to our fiduciary responsibilities and to the minerals industry."

Apparently taking the comments from industry and some of the state's top leaders seriously, the staff of the State Lands Office removed the proposed increase from the proposal. In its analysis prepared for the Board of Land Commissioners' June 2 meeting, the staff wrote:
"Notable in their absence in the lease form revision are the previously offered Pugh Clause and royalty rate increase. After considerable discussion with industry and others, those two (2) items were tabled, despite their potential to enhance returns to the state trust land beneficiaries, in the interest of securing timely Board consideration and support for the other necessary terms that are being moved forward in the current lease revision."

The Equality State Policy Center agrees with the slogan that 1966 gubernatorial candidate Ernest Wilkerson espoused: "Wyoming's Wealth for Wyoming People." Wilkerson's campaign argued for imposing a severance tax and is widely credited for creating the political climate that led to passage of the first Wyoming mineral severance tax in 1970, under the administration of Gov. Stan Hathaway.

State royalties largely go to support the public school system.

When the staff said it responded to concerns expressed by industry, it apparently meant the Petroleum Association of Wyoming. Other private royalty holders, who likewise may be considered part of the oil and gas industry, may have a different point of view. If the state sticks to a royalty rate of 16.667 percent, oil and gas producers can tell private mineral rights holders that there's no reason they should get a higher royalty rate, even if the mineral deposit in question is estimated to be of high value.

Oil and gas is a nonrenewable asset. Wyoming is not saving enough for the future when these resources will be depleted. Big Oil is reporting enormous profits and oil and gas is not becoming less valuable in the long run., The Office of State Lands and Investments should have the authority to negotiate a higher royalty rate when appropriate.