Obama Administration Wants To Raise Oil Royalties By 50%


Many people are trying to figure out what is the government’s “fair share” of income from the nation’s wealthiest people and corporations. In a move that is sure to upset anti-tax advocates, the Obama administration wants to raise the royalties that land-based oil drilling operations pay by 50% It would be the first such oil royalties hike since the 1920’s, and it is naturally meeting with resistance from the fossil fuels lobby.

Right now, on-shore drilling operations pay a 12.5% royalty rate, while off-shore operations pay 18.75%. According to Secretary of Energy Salazar, the Obama administration wants to raise the on-shore rate to the off-shore rate, meaning that all oil operations would pay an 18.75% royalty rate.

Sounds pretty stiff, but consider this; the government has been offering many oil companies royalty-free leases on-shore and off for much of the past century. And in countries like Iraq (90%) and Saudi Arabia (85%), the royalty rates are much, much higher. Obviously oil companies want the lowest rates possible, but they’ll not find them in the first world.

Even Canada charges a royalty rate of 25% for oil and tar sands alike. That is half of America’s current on-shore royalty rate, and the oil and gas industry is absolutely booming for our Northern neighbor. At a time when oil companies are generating record profits, I think it is only fair that they should have to pay extra money on land that belongs to the people of the United States. And keep in mind the billions in tax subsidies the oil industry receives, on top of free leases in special areas that have cost the U.S. billions in lost income.

Such an increase would also probably bring energy prices more in line with where they should be. Gasoline has been undervalued and over subsidized for too long, unfairly dominating the marketplace. Once people get used to the true cost of oil, alternatives will appear much more attractive. I think the administration should follow through on this royalty increase, which would be the first of its kind since the 1920’s. Big Oil has been too comfortable for too long; let’s shake things up.

Source: CleanTechnica | Image: bioraven via Shutterstock

About the Author

A writer and gearhead who loves all things automotive, from hybrids to HEMIs, can be found wrenching or writing- or else, he’s running, because he’s one of those crazy people who gets enjoyment from running insane distances.

  • Curly

    Better yet the government should give the energy companies 15% to extract the energy. That would greatly increase the revenues and help the debt .

  • Zinc

    Canada’s rate of 25% is half of the US’s on-shore rate of 12.5%…?
    Curious as to where the foreign numbers came from anyways…since they’re not mentioned in the CleanTechnica article.

  • Marcus Vitruvius

    I am confused about this mythical “true cost” of oil you mention.
    What is it and how do you calculate it?

  • I think there may be a mathematical snafu, you surely mean Canada’s rate is twice the current USA onshore rate.
    Sorry to be a pedant.
    By way of comparison there are no royalties on UK North Sea Oil but there are special taxes on the profits related to extraction, probably to take into account the huge cost of extracting oil from the North Sea.

  • Ziv

    Anything you tax more, you get less of. If we want to pay more for gas, tax oil more. But if you do decide to do that, please increase the tax slowly so the economy and the average Joe can adapt to the change. Obama has created massive uncertainty in the US economy. A little steady leadership would be welcome.
    “You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.” Barack Obama 2008

    • mental_patient

      Mass uncertainty ??? Please elaborate.

      • Will

        How much will heath care cost my business? Can my state or company opt out of it like some companies can
        Why delay the Keystone project if you want to reduce our dependance on mid east oil.
        Are you a Christian or not
        Are you trying to make America great or trying to level us out with the rest of the world
        Do you believe in Capitalism or is socialism a better model
        The list of uncertianties could go on.

        I think that is what ziv was

        • mental_patient

          –Cost of healthcare is not just an obama issues it’s been issue for our congress and past presidents for the last 30 years. The health care industry is a racket. The president wanted a public option which would of put pressure on the insurers to control their prices. Congress refused to go with the public option plan because they like the president are bought and sold by lobbyist/corporation. Anything less then universal healthcare is a waste of time and money.
          –Keystone projects will have no effect in our energy independance. It’s just a right wing mirage. If the u.s. was really serious about energy independance which they were not;they would use the trillions of dollars spent on wars of non-necessity and actually spend it on solar infrastructure as well as batteries. The money spent on these wars alone can provide every household in the use with solar panel on their homes.
          – You clearly don’t have a grasp of what capitalism and socialism is. We have a quasi capitalist system that is rigged for the top 1%(some may say this is socialism for the rich) . This is not an opinion it happens to be a fact.
          — I would prefer a mix of capitalism and socialism. Having a extreme of either or is a recipe for disaster.

      • Ziv

        Have you really not read about CEO’s and entrepreneurs are making money but refusing to hire more workers? They are all saying the same thing, they are afraid that they will have to lay them off due to increased regulations and an anti-business agenda in the White House. To a man and woman they are saying that Obama consistently says one thing about business and then does another. He tries to pick winners in the green industry when doing so is nearly impossible at this stage of the game. He has talked a good game on offshore drilling but not followed through, he is talking about increasing the oil drilling tariff by 50% and he fails to allow keystone despite the consensus that it is safe and good for American, and then tries to blame his predecessor for the high cost of gas. There is the perception that he will need to tax the living daylights out of us, and that his energy policy will mean that, ‘necessarily electricity prices will sky rocket’. Obama is bad for business, and business is what allows America to gain the wealth that allows demagogues like Obama to tax the rich until they are gone, and then he will raise everyone elses taxes too.
        Obama is a rather poor joke of a president. But within a few years, the joke will be on you and me. Remember Obama’s recovery summer? It was supposed to be in 2010, but his maladroit handling of our country has prolonged this economic purgatory. Obamas Justice department shook down Boeing when they built a new plant outside of Washington State, in a patently pro-union stab at the company. They had to shame-facedly drop the action, but business knows they could be next. Obama told Occupy Wall Street chumps, “you are the reason I ran for office”. D’Souza nailed Obama’s problem in his book, “The Roots of Obama’s Rage”.
        The article below is a pretty good summary of another persons take on Obama.


        • mental_patient

          I’m not a fan of obama or any party for that matter but you live in a foxnews/rush limbaugh right wing bubble.

          • Ziv

            Is this article due to my ‘right wing bubble’? Obama is using the Justice dept for politics and they are hurting American businesses by going off half cocked in an attempt to assure their supporters that they are all in for protecting the rain forest, but they end up ignoring common sense in the process.

          • Ziv

            Another reason businesses are wary of hiring, Obama thinks that a guy who thinks,”“Somehow,” Chu said, “we have to figure out how to boost the price of gasoline to the levels in Europe.”, is the right man for the Secretary of Energy. Can you imagine what kind of signal that sends to businesses which rely on transportation?

  • Roseland67

    The governments “Fair Share”, Is MORE, always MORE

  • DaveD

    About damn time. We own those assets, why should we let oil companies take them and sell them back to us at such huge profits. And they should have the additional revenue earmarked directly for improving our roads and bridges and they should NOT be allowed to use them for any social programs. If there is any money left over, it should be used to fund alternatives to oil.

    I will agree with Ziv on one thing though, they need to do it slowly so they don’t cause shock to the economy.

  • Heck yes, raise it to 50%. The oil that’s being referred to belongs to the Citizens of the United States. It’s a reasonable proposal to make the oil companies pay US for OUR oil. Just like if I let an oil company put a well on my private property, I don’t do it for free. The United States can’t afford to subsidize large corporations any longer. Make them pay their fair share.

    • lee

      To me higher oil price come out as wash. Raises prices while encourages development of alternatives which ultimately lowers the demand and lowers oil prices. The country should be charging what the market will bear and, frankly, they have been paying us below market. That money could go toward paying down the debt or back to the taxpayers via tax cuts and where they can pay the higher prices in an energy market that favors advancement.

  • sean67

    Can’t see how one man can persuade the companies to give 50% of the revenues and profits they have. Nothing wrong with a company making a profit. But one oil company made an oil tanker load a couple years ago. Don’t seem right. Unemployment rate fluctuates, Education takes a beating and our Infrastructure that makes America profitable is aged and decrepit. So I say sure. Let the oil companies invest in America. Our Roads they Drive on, Bridges they cross, Tunnels they use, If not, No matter the price of fuel, No one will be going nowhere in the next 100 years with a fuel engine due to infrastructure break down. But this is all talk anyhow and i am just ranting anyway…..

  • Michael Breaux

    Since when did making a profit become a crime? I never will understand why weak people want to be controlled by the government and I see alot of weak people here. Profit is what drives the world. Do you work for nothing? If oil companies make billions, if CEO’s make millions, that is fantastic for our country becuase it means they are busting butt to provide you with something you want or need. Is Microsoft an evil corporation for providing you with your stupid Ipod, Ipad, etc?

    • @ Michael

      I can tell you really have your facts straight, thinking Microsoft makes the iPad.

  • Michael Breaux

    ANother thing – every time I hear “pay their fair share” I think of stupid sheeple repeating a phrase that they can;t possibly understand. I bet you are youg and have never owned a business. Hey, if you want to get YOUR oil, why don;t you drill for it. I see oil companies spend hundreds of millions here in Louisiana and get nothing but water. So when they finally get something, you want to take as much of it as you can becuase it is Yours or OURS. It is nothing until someone with enguinity and an incredible work effort gets it and that is obviously not you.

    • @ Michael

      I am young, and I am my own business. The government takes fully a 1/3 of my meager salary. I do not complain about the sizable tax burden I carry as a result of my self-employment because I control my own working destiny.

      In fact, I pay a 15% self-employment tax that goes into Social Security, a program I will likely never benefit from because companies like Exxon find a way around paying their fair share of the tax burden.

      Big Oil has reaped trillions of dollars in profits in just the last ten years, and many of them pay little or no Federal Income Tax. You’re telling me that’s fair, when I have to hand over over 30% of my earnings (less than $30,000 a year) every year in taxes to pay for programs I won’t ever draw from?

      • Don’t argue with people who don’t understand business, Chris. You’re better than that.

    • I’m glad whatever money you make from the oil companies in your state helps you sleep at night, despite the damage they’re doing to the air, soil, and water your children will have to live off of … that said, I often hear stupid sheeple repeating something they read in an Ayn Rand book they don’t understand. I bet all the Louisiana inbreeding makes it pretty hard to think about anything at all, too, especially the future of your children/cousins. I bet you’re old and confused by things like electric light and “minorities”.

      See? We can all play the stereotype game instead of actually thinking about things, Mike. Stop being a twat.

  • MJL