Fossil-fuel royalties surge for local governments, school districts in Colorado
The Colorado Sun
Oil, natural-gas, and coal-mining operations on federal lands in Colorado generated more than $393 million in lease and fee revenues in 2022 for the federal and state governments — the most in 14 years.
A combination of increased oil production, higher commodity prices, and new royalty rates and fees led to a 64% surge in revenue in Colorado compared to 2021, according to figures from the U.S. Department of Interior.
In April, the Biden administration increased the royalty rate for new oil, natural-gas, and coal leases to 18.75% from 12.5% and the federal Bureau of Land Management, which oversees mineral leasing, raised the fees for dozens of types of applications, permits, and renewals.
“One of the big improvements we’ve seen in this past year was raising the royalty rate,” said Kris Smith, a researcher at Headwaters Economics, a nonprofit research group.
“The 12.5% rate has been around since the 1920s, so this is an important change that will help the federal government and states capture more revenue,” Smith said.
The revenue is split 51% to the federal government and 49% to Colorado. The state has received $142 million, with the the remainder “subject to timing issues,” according Chris Mentasi, a spokesman for Interior’s Office of Natural Resource Revenue.
The rest will be sent, after accounts are verified, in this fiscal year, he said. The fiscal year 2022 ended on Sept. 30.
In Colorado, 60% stays with the state, and the remainder is distributed by the Department of Local Affairs to local governments impacted by drilling and mining activities and to school districts.
Half the money is returned to local governments in direct distributions using a formula — based on local energy-industry employment and revenues generated from federal leases — and the other half is awarded in discretionary grants.
The counties that have generated the most federal revenue in the past have been Garfield, Rio Blanco, and Montezuma, followed by Moffat and Weld, according to the state’s 2021 biennial report on distributions.
Those six counties account for almost 40% of the $16 million in direct distributions in 2021.
State mineral severance tax money is also distributed to those local governments in a similar manner.
There are about 2.2 million acres of federal land under lease in the state, equal to about 8% of the 27.3 million acres of federal mineral estate in Colorado.
Nationally, $21.5 billion in revenues were generated on federal and tribal onshore lands and federal offshore leases, in the fiscal year, which ran from October 2021 to the end of this past September. That included a record $4.4 billion offshore wind lease sale on the Atlantic coast.
The 2022 proceeds were more than double those in 2021 and were the highest since 2008, when activity on federal leases generated $24 billion in revenues.
About $6 billion was returned directly to 33 states and Native American tribes.
“It can be a useful amount of money when state budgets are tight,” Interior’s Mentasi said.
The revenue increased even though there was no major increase in production. Oil output on federal lands was down a little less than 1%, and natural-gas production dropped 4%. Coal production was up 2% to 258 million tons.
Production on federal lands in Colorado was a mixed bag, as both coal and natural gas were down while oil output was up.
Colorado natural-gas production, which is measured in thousand cubic feet or mcf, dropped 9.5% to 533 million mcf, while oil output was up 14% to 10.5 million barrels when compared to 2021.
Coal mined on federal land in Colorado was down 17% to 7.5 million tons and sodium bicarbonate mining up 7% to 252,000 tons.
Rising commodity prices were a key reason for the surge in revenues as oil, natural gas, and coal prices all rose in 2022, Kathleen Sgamma, president of the Western Energy Alliance, an industry trade group, said in an email.
The price of natural gas delivered to Colorado for use by distributors rose to $9.31 an mcf in August from $3.37 a year earlier, according to the U.S. Energy Information Administration.
There was a run-up in oil prices in 2022 with the price of a barrel of U.S. domestic oil peaking at $114 in June, 60% more than in June 2021. About 10.5 million barrels of oil were produced on federal lands in Colorado.
In October, U.S. coal rose above $200 a ton for the first time since the federal government began tracking prices in 2005. Coal’s boost came from a combination of a reviving economy after pandemic shutdowns, energy markets roiled by the Russian invasion of Ukraine, and the high cost of natural gas, which made coal a more economical fuel.
The $142 million in revenue sent to Colorado was the fourth largest disbursement among the states after New Mexico, Wyoming, and North Dakota.
New Mexico holds the western end of the Permian Basin, the nation’s largest and most heavily-drilled oil field. “New Mexico revenues have grown exponentially,” Mentasi said. Federal lease revenues to New Mexico have quadrupled in the past five years.
In 2022, that state received $2.74 billion in federal mineral revenues, as more than half the state’s oil and gas wells are on federal land and a third of the state budget is funded by oil and gas revenue.
“We see a lot of volatility on royalties since it depends on commodity prices,” Headwaters’ Smith said. “States in general are spending the revenue rather than saving it, so there is a risk of becoming dependent on the revenues.”
Smith said some states, such as North Dakota and Texas, have used the federal revenues to create endowments to provide steady and predictable funding.
Most of Colorado federal lands are on the Western Slope, while its most productive oil fields are on private lands on the Front Range. The $142 million federal disbursement represents a tiny fraction of 1% of the state’s $36.4 billion budget.
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