Interior's Own Math Says This Rule Could Costs Us $331 Million a Year.
The Office of Natural Resource Revenue's own analysis gives us the $331 loss, but what's buried deeper in this proposed rule points to something more suspicious.
Thirty eight years ago, someone at the Minerals Management Service typed a sentence into the federal rulebook. "Gathering is the movement of lease production to a central accumulation or treatment point." Unfortunately, they never really defined much more than that, and it has caused years of legal argument.
Today, that sentence is still alive, and undefined, causing companies and the federal government to sue each other over it.
Oil taken off federal land is our oil. The people’s. Companies pay us at the state or federal level a cut of what it’s worth. Worth is everything the company takes in for it, minus what they subtract. They can subtract transporting the oil. They cannot subtract gathering it. Push the somewhat undefined line between the two toward the well and our check grows. Push it out and it shrinks.
Onshore that line sits on the well pad and gathering runs under a mile. Offshore it can run 60. Deepwater oil crosses that much pipe before anybody measures it, and all 60 miles count as gathering.
On June 30 the Office of Natural Resources Revenue proposed moving the line with a proposed rule that has gotten almost zero attention. (Currently, there are 2 comments posted to the docket.) Offshore, gathering would end at the first of three things: where two wells come together, where production gets separated, or the edge of the lease. Everything past that is transportation, and costs that were never deductible now are: heated flowlines, the pigs that scrape wax out of the pipe (yes, pigs), the floor space a compressor takes up, and on a floating platform, the buoyancy that keeps it from sinking.
I’ll give them the point. Sixty miles of seafloor pipe costs real money, and whoever wrote that sentence in 1988 maybe wasn’t thinking about deep water.
Now the number.
The rule cuts royalty collections by $331 million a year, $305 million off the Treasury and $25.7 million off the states. That’s not a watchdog’s figure, it’s ONRR’s own, and ONRR calls it conservative, because the offshore costs it modeled came from 1990s platforms and were never adjusted for inflation. The hole is probably deeper.
Then ONRR files the rule as deregulatory. To carry that label a rule’s costs have to come out at zero or less, so the $331 million goes on the books not as a cost but as a transfer. Money changing hands, nobody hurt. The same classification clears a second hurdle: a rule with a $100 million effect on state budgets normally requires a written justification. A transfer requires nothing.
Interior’s forecast against that: $205 million a year stays with industry, gets reinvested, and yields 2.6 million extra barrels a year from 2031 to 2046. That assumes oil at exactly $70 for two decades, every dollar reinvested, and a royalty rate Congress cut last summer. Interior applied the lower one at its first Gulf lease sale after the cut.
Nearly every dollar in the Land and Water Conservation Fund comes from offshore oil and gas. That’s the $900 million a year behind trailheads, inholdings, and neighborhood ballfields. New Mexico takes the biggest state hit at $9.7 million, and its royalties feed a $40.8 billion fund that pays for its schools.
The rule deletes one more thing. Right now, if a company’s reported value looks wrong — the contract hides part of the payment, the gas got sold to the company’s own subsidiary, the documents never show up — ONRR can throw the number out and substitute its own. That goes away, along with the definition of misconduct underneath it. ONRR’s defense is that it used the tool once since 2017, so nothing is lost. However, used once doesn’t mean nobody needed it. It can mean nobody reached for it.
My problem with this is who’s asking for it.
The sentence belongs to MMS, the agency that forgot price thresholds in the 1998 and 1999 Gulf leases and gave away about a billion dollars, with six to ten billion still owed. Whose inspector general found in 2008 that nearly a third of its Denver office selling the government’s oil was taking gifts from the companies buying it. Ski trips. Golf. Concert tickets. Illicit drug use. Sexual relationships between agency and company employees. MMS was dissolved in 2010. ONRR is what grew back.
In 2011 GAO put Interior’s oil and gas management on its High-Risk List. It’s still there, eight times in a row, same finding every time: Interior can’t say for certain it’s collecting what it’s owed. ONRR last measured its own shortfall that same year. About $100 million. Then it stopped measuring and never said why.
So an agency that hasn’t checked what it’s missing since 2011 is telling us what it’ll collect in 2046… How can we have any confidence in this agency?
Comments close August 31.
https://www.regulations.gov/docket/ONRR-2025-0001
Or Google: Docket ONRR-2025-0001, or ONRR_RegulationsMailbox@onrr.gov with RIN 1012-AA39 in the subject. They only have to answer what’s in the docket. Again, when I checked this morning, there were only two comments in it.
Here’s the comment I am sending: Google Doc
I have started peeling back some layers on the whole history of the royalty program that’s “supposed” to get audited by MMS and now ONRR. I’m currently organizing a way to tell this story in full. There’s a lot to it. If you want to learn more or can teach me something about it, I’d love to chat.
Thank you for reading! Wild places don’t come back. Conservation Current tracks the policies, projects, and decisions eating away at America’s public lands, and holds the energy industry accountable when it takes the easy path over the right one. I believe in clean energy and progress but it must be done ethically.
I write this, build this, and fund this myself. If you find any value in this, a coffee goes a long way.
Check out The Conservation Current Public Land Policy Tracker surfaces the five most impactful open comment periods and regulatory actions on federal public lands. Ranked by scale, irreversibility, and deadline urgency. Updated weekly. Always verify deadlines at regulations.gov before submitting.
Sources:
Regulations.gov - https://www.regulations.gov/docket/ONRR-2025-0001
PDF of ONRR analysis: https://www.regulations.gov/document/ONRR-2025-0001-0003