Bankrupt coalbed methane company US Realm Powder River nabbed a 96% discount on its royalties for 23 federal leases under a Bureau of Land Management COVID-19 relief policy this spring, despite owing the federal government almost $4 million in unpaid natural gas royalties detailed in court claims.

The policy’s intent, according to BLM application guidelines, was to support companies financially impacted by the pandemic, to reduce well abandonments and to encourage “the greatest ultimate recovery of oil and gas.”

US Realm’s bankruptcy was already six months old by the time the BLM offered the relief, however, and while the company’s affiliates continue to recover natural gas from the Powder River Basin, they haven’t paid local taxes on that extraction in more than three years.

US Realm holds a 50% or greater share in 21 of its 23 leases that received the maximum royalty reduction for May and June, according to the BLM’s LR2000 database. At the time the application was reviewed, the company owed more than $40,000 in 2019 royalties on the specific leases that received relief, according to a court claim from the U.S. Department of Interior.

Chris Mentasti, a spokesman for Interior’s Office of Natural Resources Revenue, confirmed in a Sept. 21 email to the Buffalo Bulletin that those royalties remained unpaid.

Oil and gas operators typically owe a 12.5% federal royalty on their earnings from public lands extraction. About half of that is returned to the state where production occurred, amounting to roughly $600 million annually for Wyoming in recent years. Under the relief policy, companies could request a reduction in their owed rate to as low as 0.5% for 60 days, with an option to renew.

A bipartisan array of conservation groups criticized the move as an ill-timed government giveaway that would incentivize production at a time when prices were low and markets oversupplied, shortchanging taxpayers and state budgets as companies profited from publicly owned resources without paying their dues.

The first version of policy guidance, released by the BLM in April, required that operators certify that the lease in question would be capable of producing oil and gas in paying quantities if not for extreme circumstances related to the pandemic. Applicants were also required to provide an economic analysis showing that the lease would be profitable with the royalty reduction.

It is difficult to see how US Realm fit those criteria.

Financial reports filed long before the pandemic consistently documented monthly multi-million-dollar losses, without even counting local taxes and surface use agreement payments that continued to accumulate and go unpaid. BLM representatives declined to comment on the specific case, and US Realm did not respond to multiple requests for an interview.

While all three members of Wyoming’s congressional delegation supported the sentiment behind the BLM policy, all said that federal relief should have safeguards or should not be available to companies with outstanding tax bills, according to statements from their respective spokespeople.

“While we want to help all of our producers in Wyoming during this challenging time, federal funding should not go to any producer delinquent in their taxes,” said Sen. John Barrassso, R-Wyo., in a statement.

“When you’re handing out taxpayer-backed bailouts and royalty cuts like candy without doing the due diligence and work necessary to protect the public interest, like the Trump administration has done, it’s almost assured that countless bad actors like US Realm will grab a handful, leaving the bill and cleanup for the rest of us,” said Jayson O’Neill, director of the Montana-based public lands watchdog group Western Values Project.

The BLM quietly changed its application guidance in June, by which time US Realm’s leases had already received reductions.

The new criteria offered even looser restrictions on eligibility, no longer requiring that applicants prove that a lease could be profitable with a reduction.

Of the eight states where companies obtained royalty reductions, Wyoming operators benefited disproportionately from the relief, even as state officials grappled with news of a general fund revenue shortfall projected to reach one-third of the state’s total budget by June 2022. Of 467 total royalty reductions, 324 were for Wyoming leases, according to an analysis by the Center for Western Priorities.

The BLM did not approve all requests for relief in Wyoming. The agency declined 131 requests for royalty reductions, primarily on leases owned by Exxon Mobil, EOG Resources and Crowheart Energy LLC, according to the LR2000 database.

Petroleum Association of Wyoming President Pete Obermueller said in a June interview that he appreciated all offers of financial support for his member companies, but that at the time, oil prices were so low that even the elimination of taxes and royalties couldn’t make extraction profitable for some producers.

US Realm is not a Petroleum Association of Wyoming member.

Obermueller favored a second relief option offered by the BLM that allowed operators to temporarily suspend their federal leases without penalty.

“The most important thing is for companies to be able to hold on to their permits and their lease positions, and make economic decisions about those in a time when the economy isn’t standing on its head,” he said.

US Realm is not the sole lessee on many of its parcels that obtained relief, so it is possible that the applications for royalty reduction were filed by a different company. Regardless, US Realm would have benefited from the relief. BLM spokesman Derrick Henry confirmed that all royalty reductions applied to “the lease/operator and not to a particular lessee.”

Furthermore, based upon the Interior Department’s bankruptcy court claim, US Realm was responsible for paying royalties on the leases in question, even if it had failed to do so, putting the company in a position to benefit from the relief.

US Realm’s operator and affiliate company, Carbon Creek Energy, was still operating on those 23 leases in May and June, according to records from the Wyoming Oil and Gas Conservation Commission.

Production data accessed Sept. 11 shows that during those months, one-third of Carbon Creek’s total production occurred on the 23 leases with royalty reductions.

Other companies listed as holding rights to those leases have their own checkered past with accurate and timely royalty payments, according to an analysis from watchdog group Accountable.

US. Citation 2004 Investment (a Citation Oil and Gas subsidiary) and XTO Energy (an Exxon subsidiary) are co-lessees with US Realm on 10 of the 23 leases, and Citation and US Realm split rights on an additional six.

Citation agreed to pay $2.25 million in 2017 to settle allegations that the company underpaid royalties, according to documents from the U.S. Department of Justice. XTO Energy was fined $890,000 in 2019 after failing to provide requested information for a royalty audit. Citation did not return multiple requests for comment. An Exxon spokesperson told the Guardian in a story published Sept. 4 that XTO was not operating on the leases and did not apply for the relief.

The BLM royalty reductions weren’t the only federal aid propping up the US Realm family of companies this year.

Carbon Creek received a forgivable Paycheck Protection Program loan of between $150,000 and $350,000 this spring. Although US Realm’s bankruptcy filings show that Carbon Creek supports 170 local jobs in the Powder River Basin, the majority of those are contracted through other oilfield service providers. U.S. Small Business Administration records show that the PPP loan supported just 17 employees.