Wyoming Oil & Gas Revenue Projected to Dip Following Royalty Rate Cuts
Cheyenne, WY – wyoming stands to see a decrease in revenue from federal oil and gas leases following the implementation of the ”Big Beautiful Bill,” officially known as the Fiscal Responsibility Act of 2023, which substantially reduces royalty rates for new leases.The law, signed in June, lowers the royalty rate for new oil and gas leases on federal lands from 12.5% to 6.25%, a change critics fear will incentivize advancement while diminishing returns for the state and federal government.
The royalty rate reduction is the first major policy shift stemming from the bill impacting Wyoming’s energy sector. Wyoming receives 50% of the royalties collected from federal leases within its borders, funds crucial for state education and infrastructure. The Congressional Budget Office estimates the royalty rate cut will reduce federal revenue by $1.3 billion over ten years. The exact impact on Wyoming’s budget remains to be seen, but state officials are bracing for a potential shortfall.
“Wyoming is exciting to oil and gas operators precisely because we are still exploring for resources and testing the horizontal and vertical bounds of oil and natural gas basins,” stated Pete Obermueller,representing the oil and gas industry. He argues that leasing,even if initially ”speculative,” is essential for future production. “Every single lease ever offered is, at one point, speculative. People forget that oil and natural gas must first be found before it can be produced.”
However, concerns are mounting that the lower rates will encourage speculative leasing - the practice of acquiring leases not for immediate development, but to hold them for future potential or to limit environmental restrictions. Recent Bureau of Land Management (BLM) lease sales have fueled these concerns. Parcels in Converse and Campbell counties recently fetched prices exceeding $1,000 per acre, with one Campbell County parcel selling for $4,612 per acre, according to BLM reports.
Alec Underwood, Conservation Director for the Wyoming Outdoor Council, points to the recent BLM lease sale as evidence of speculation. ”Only a very small percentage of acres purchased in the sale, 7%, accounted for more than 80% of auction revenue. this points to many of the parcels being leased through speculation,” he said. Underwood advocates for prioritizing leasing in areas with higher production potential and existing infrastructure, rather than “a fire sale of leases in notable habitat.”
The BLM’s most recent quarterly oil and gas lease sale took place this month, fully implementing the new policies under the Trump management. The next sale is scheduled for December. More facts can be found on the BLM webpage: https://eplanning.blm.gov/eplanning-ui/project/2037704/510.
The long-term effects of the reduced royalty rates on Wyoming’s economy and environment will depend on future oil and gas prices,production levels,and the extent to which the lower rates stimulate increased development. The debate over balancing economic possibility with responsible resource management is expected to continue as Wyoming navigates the changing landscape of its energy industry.
