Persistency in the Oil & Gas Industry by the US Government

The assumption that people are being exploited in the computation of oil and gas royalty can prove to be an interesting speculation. Note especially our governments earning from the previously stated mineral royalties. With the US government earning more than $20 billion in taxes from these royalty payment and $13 billion in royalty payments itself one can guess the lucrative nature of this industry. Also, the government receives over $10 billion in upfront mineral royalty interest fee in 2008 alone.

The previously stated figures can be compared to the economies of the world’s leading industries. The figures are strikingly higher than most of worlds nation’s complete fiscal economy for an entire year. The tax and tariffs imposed on these mineral royalties vary in the United States compared to the rest of the world. Oil and gas royalty buyers need to know all of such tax and tariffs. The difference is because the US government puts a larger proportion of interest on the collection of upfront fees for these royalties. This step is taken in order to mitigate the risk which is a given when dealing in oil and gas exploration. The US government considers the interest payment of the upfront fees as a way to relax any financial burden, which the country might be facing. They heavily rely on these mineral royalties for tax generation, which ultimately aids in easing the economic crisis faced by the nation.

This also implies that whether there is drilling or whether the mineral production generates revenue or not, the government has secured its share in the form of these levies. Apart from payment of royalty to the owner, the companies and their operators are obliged to pay royalty to the US Department of Interior where the mineral rights are owned by the government.

The provision of a sample for the computation of the mineral royalty rate is approximately 1/8^th of the total production value of the onshore federal leases. However if you want to estimate it using the production offshore value leased, it is approximately 1/6^th of that. The computations of all these estimations are stipulated in the ‘Mineral Lands Leasing Act’ and the ‘Outer Continental Shelf Lands Act’.

Considering an example, for if a company wishes to drill for minerals in the US Gulf of Mexico, they would have to pay approximately thrice as much if they were to relocate anywhere else in the world.

With so many costs how can the US government generate revenue? The answer is very simple. They could provide the mineral rights owner with incentives such as subsidiaries for their production. Tax breaks are another huge incentive for people involved in this industry, so the government could try providing those for the most lucrative of owners. One could also provide lower interest on loans to attract public to invest in this industry. Lenient loan payoff could very well be another incentive for the companies and owners, because the production of mineral takes time. Overall, there are a lot the government can do to consistently earn revenues from this industrial sector.

Most of the incentives stated above are currently being followed by the law enforcing authorities. This has led people to believe that the US government has a very open attitude toward the oil and gas royalty buyers.

Provision of incentives and willingness to invest in this sector is rendered useless if one does not have the abundance of resources. The United States however has large sources of oil and gas to keep this industrial sector alive and running.
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