Wednesday, December 12, 2012

GAO Report On U.S. Mineral Volume, Value, & Revenue

Dec 122: The U.S. Government Accountability Office (GAO) released a report entitled, Mineral Resources: Mineral Volume, Value, and Revenue (GAO-13-45R, Nov 15, 2012). The report was requested by Representative Raúl Grijalva (D-AZ), the Ranking Member Subcommittee on National Parks, Forests, and Public Lands Committee on Natural Resources and Senator Tom Udall (D-NM).
    GAO indicates that The Department of the Interior (DOI) administers minerals found in over 700 million acres of Federal lands, 57 million acres on Indian lands, and 1.8 billion acres below offshore waters. Operators who lease these lands and extract these minerals pay billions of dollars annually that are shared among Federal, state, and Indian tribal governments and are one of the largest nontax sources of revenue to the Federal government. Some of these minerals, such as oil, gas, and coal, are available through leases requiring payments in the form of rents and bonuses, which are required to secure and maintain a lease, and royalties, which are based on the value of the minerals that are extracted. These minerals are generally known as leasable minerals. The Department of the Interior's Office of Natural Resources Revenue (ONRR) is responsible for compiling data on the volume and value of leasable minerals produced from all Federal and Indian lands where there is a trust responsibility, and collecting the appropriate payments. In contrast, other minerals, such as gold, silver, and copper, are governed by the General Mining Act of 1872, which makes these minerals available to operators through a Federal claim-patent system that provides the right to explore, extract, and develop the federal mineral deposit without having to pay a royalty. These minerals are generally known as hardrock minerals.

    Congress asked us to review minerals extracted from Federal lands. Our objectives were to provide information on the: (1) volume and dollar value of leasable minerals extracted from Federal lands and waters in fiscal years 2010 and 2011; (2) amount the Federal government collected for leasable minerals in royalties, rents, bonuses, and other revenue and how this amount was calculated; and (3) availability of data on the volume and dollar value of hardrock minerals extracted from federal lands in fiscal years 2010 and 2011.

    GAO found that in summary, there were nearly 70 different types of leasable minerals extracted from Federal lands and waters in fiscal years 2010 and 2011, but their volume cannot be aggregated because they use different units of measure. For example, the volumes of the four most valuable of these minerals -- oil, gas, natural gas liquids, and coal -- are measured in barrels, million cubic feet (mcf), gallons, and tons, respectively. According to ONRR data, the total value of all leasable minerals extracted from Federal and Indian land and sold in fiscal years 2010 and 2011 was $92.3 billion and $98.6 billion, respectively.

    The resulting revenue to the Federal government from mineral leasing activity on Federal and Indian land in fiscal years 2010 and 2011 was $11.3 billion and $11.4 billion, respectively. Of this amount, oil, gas, and natural gas liquids accounted for the majority of the revenue -- $10.1 billion in each fiscal year. The bulk of this revenue comes from royalties, which accounted for 92.8 percent of total revenue in 2011.

    The mechanisms used to calculate the three types of leasable mineral revenue -- bonus bids, rents, and royalties -- vary widely. For example, for oil and gas leases, bonus bids -- up-front payments to obtain a lease -- are determined by a competitive bidding process, with leases going to the highest bidder. Prior to the competitive bidding, Interior sets a minimum acceptable bonus bid for each offshore parcel and a minimum per acre bid amount for each onshore parcel offered for lease. Rent is charged annually for a lease until production begins or the lease is terminated or relinquished. Royalty rates depend on the mineral and are generally calculated based on a proportion of sales value, less allowable deductions, such as transportation and processing allowances.

    Regarding the availability of data on hardrock minerals, GAO found that Federal agencies generally do not collect data from hardrock mine operators on the amount and value of hardrock minerals extracted from Federal lands because there is no Federal royalty that would necessitate doing so. Furthermore, while many western states collect data on the hardrock minerals produced in their state for purposes of assessing a state royalty, they generally do not collect data on the volume of those minerals extracted from Federal land within those states. The Department of the Interior is now working to implement an international initiative to promote openness and accountability in the oil, gas, and mining sectors called the Extractive Industries Transparency Initiative [See WIMS 10/11/12]. This initiative is currently in the beginning stages of implementation -- consequently it is unclear what affect, if any, it will have on reporting requirements for operators of hardrock mines on Federal lands. Interior officials told us that they expect to finish implementing this initiative in about 4 years.

    Senator Udall commented saying, "This report confirms what we've been saying all along -- that we need to reform the mining law of 1872. Hardrock minerals are natural resources that belong to the American people, and we need to make sure we are getting the best return on what should be an investment -- not a giveaway." Representative Grijalva said, "We've been hearing from conservatives that we need fewer hours at national parks, less reclamation of valuable lands, fewer services for park visitors and a whole gamut of supposedly necessary cutbacks. Well, now we know we've been leaving a huge pot of money on the table that could change all that. There's no reason to keep these extraction and royalty laws out of date. At the very least we need disclosure so American taxpayers know what is being taken from their lands. Keeping the public and Congress in the dark any longer about what's going on with Federal property doesn't serve any public purpose, and it should end."

    Grijalva added, "There's a simple legislative fix for this big hole in the Federal government's revenue stream, and it's only fair that companies benefiting from access to public lands pay their fair share. The Department of Interior should continue to implement the Extractive Industries Transparency Initiative and Congress should make sure disclosure [is] a priority, and then we can talk about how to make sure the American people financially benefit from the sale of public minerals the way they should have been all along."

    Grijalva is a cosponsor of H.R.3446, formally known as the Fair Payment for Energy and Mineral Production on Public Lands Act, which would set a 12.5 percent royalty rate on hardrock minerals. He has said he looks forward to supporting and strengthening an updated version in the upcoming Congress. Senator Undall added, "I hope this report can be a catalyst for discussion about reform, but at a minimum it shows we need better disclosure on extraction of our natural resources. Both parties want to solve our economic challenges and make government more efficient for the taxpayers - here's an opportunity to do both. We should be able come together on this issue, and I look forward to making that case to my colleagues in the next Congress."

    Sierra Club Executive Director Michael Brune issued a statement saying, "This report provides an answer to anyone wondering why big polluters are so eager to get their hands on our public lands: big oil and mining companies get bargain basement deals to destroy the mountains, valleys, and rivers owned by everyone else while raking in billions in profits. These big companies are the worst possible tenants American taxpayers could have, devastating the property they have been trusted with by sacrificing our lands and poisoning our water – and then getting rewarded for it. . . it's time for Congress to act to not just ensure taxpayers get a square deal, but to protect the lands that belong to all of us from exploitation at the hands of just a few companies who deserve to be evicted."

    Access the complete 50-page report from GAO (click here). Access the release from the Members (click here). Access the Sierra Club statement (click here). Access legislative details for H.R.3446 (click here). [#Land, #Energy]

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