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BLM REAFFIRMS PLAN TO CUT STRIPPER ROYALTY

March 16, 1992

The Bureau of Land Management has formally proposed a reduction in royalty rates for 13,500 U.S. stripper oil wells on federal land. Effective sometime this summer, instead of the current 12.5% royalty, stripper wells would carry a 0.5% royalty for the first 1 b/d of production and another 0.8% royalty for each additional 1 b/d through 15 b/d. BLM estimated the sliding scale royalty reduction will increase U.S. oil production 12,875 b/d and boost oil industry employment. It said the $6

The Bureau of Land Management has formally proposed a reduction in royalty rates for 13,500 U.S. stripper oil wells on federal land.

Effective sometime this summer, instead of the current 12.5% royalty, stripper wells would carry a 0.5% royalty for the first 1 b/d of production and another 0.8% royalty for each additional 1 b/d through 15 b/d.

BLM estimated the sliding scale royalty reduction will increase U.S. oil production 12,875 b/d and boost oil industry employment.

It said the $6 million/year cost of the rulemaking would be offset by added royalties from increased stripper production.

The agency has been considering the rule for several months (OGJ, Nov. 11, 1991, p. 17). Stripper wells produce about 20% of the oil on federal leases.

BLM will review the royalty reduction program after 5 years and either continue, change, or end it. The program will be canceled if the price of West Texas intermediate oil averages $28/bbl, adjusted for inflation, for 6 consecutive months.

When it first suggested the reduction last fall, BLM said it would be applied by lease, based on the production rate from the previous year. Injection wells would be counted in determining average production by well and lease.

Even if operators increase production on the lease, royalties would remain at the new, reduced rate for 5 years.

BLM noted there are more than 6,000 shut-in stripper wells, mostly in California, New Mexico, and Wyoming, 80% of which could be returned to production and 20% of which could be used in enhanced oil recovery projects.

BLM will accept comments on its proposal until Apr. 10, then consider issuing a final rule.

The Independent Petroleum Association of America said, "We believe this proposal will result in increased production of domestic petroleum resources in a way which will benefit producers, consumers, and the federal treasury. This policy change may permit many of these wells, which might otherwise be shut in or even plugged and abandoned, to continue production even at today's depressed oil prices."