That royalty relief was supposed to go to wells that would have otherwise shut down because of the sharp decline in oil prices. The idea was to make sure that normally profitable wells were not plugged permanently because of the health crisis.
But the GAO, in a report released Tuesday, said the Trump administration failed to properly take the economic viability of wells into account when deciding which wells got relief — and probably ended up offering aid to oil producers that did not need it, shortchanging taxpayers in the process.
“This is exactly the time the government should be spending money,” said Frank Rusco, the watchdog agency’s director of natural resources and environment. “But we’re about good government. And if you do it, do it in a smart way.”
When oil prices plummeted this spring, the Trump administration offered a 60-day reprieve on royalty payments in more than 500 cases in Western states.
The Bureau of Land Management, which oversees drilling on federally controlled lands, reduced rates from the agency’s usual minimum of 12.5 percent to an average of less than 1 percent between March 24 and June 11.
Offering a break on royalty payments is not unusual, especially during economically challenging times. When deciding which wells got relief, officials on the ground in BLM’s state offices told the GAO they considered certain factors, such as transportation and refining costs, that may weigh heavily on low-margin producers during a price crash.
But the agency failed to analyze whether royalty relief was needed in the first place to keep wells operating during the pandemic, according to the GAO — and, in turn, to ensure “the government gets a fair return” for taxpayers on its oil and gas.
Whether an application for royalty relief was approved varied wildly state by state, in part because local BLM officials interpreted guidance from headquarters differently, the GAO said.
The majority of wells granted a break on payments were in Wyoming, with wells in Utah, Colorado and other places also getting some relief. But the approval rate in Wyoming was just 28 percent, while in BLM office covering Montana, North Dakota and South Dakota it was 95 percent.
The total cost to taxpayers was $4.5 million in forgone revenue in May and June — though the GAO said that estimate is “conservative.” The watchdog agency recommended the BLM evaluate the effectiveness of the relief program and update its guidance for it.
The Trump administration denounced the watchdog agency for not working with it “in good faith.”
Derrick Henry, a BLM spokesman, defended the agency’s royalty relief program, saying it was legal and has been done under other presidents.
“No special circumstances were granted to anyone,” he said, adding that relief was granted only “when it was legally permissible, in the best interest of the United States, and when it would encourage the greatest ultimate recovery of our natural resources.”
Although the watchdog agency did talk to local BLM staffers, it was not granted interviews with