Company officials told local newspaper the Grand Junction Sentinel that it first asked the U.S. Bureau of Land Management (BLM) in November 2012 to drop its royalty rate to 5%, from 8%, on about 13.1 million tons of production through this year after coming into mining challenges tied to deeper mining depths, including ground pressures and higher methane.
Elk Creek subsequently reduced its output following a pillar burst that led to an increase in methane and fire. The mine was idled at the end of 2013 with its longwall panel equipment entirely and permanently trapped.
Officials for Gunnison County, as well as Colorado state officials, are opposing the request, the paper said, while Delta County representatives have remained neutral. The BLM has said that reducing the royalty would be incentivizing production despite being a retroactive move.
If the reduction is approved, it would allow backward benefits to December 2012. Since that time, according to BLM data provided to the paper, Oxbow has mined about 583,000 tons — equating to a savings of about $604,000 for the company. The producer said production is closer to 1 million tons.
The Sentinel report also noted that there is a difference of opinion between Oxbow and the BLM on the length of time it has taken to process the reduction request. While the BLM reportedly has said the producer placed its application on hold after the geological issues began, parent company Oxbow Carbon told the paper it “does not know why it has taken until recently for the agency to act.”
“Royalty rates for surface and underground coal leases under the federal Minerals Leasing Act are established for what would be considered normal mining conditions. The act recognizes that reducing royalty rates can provide an incentive to recover reserves which might not otherwise be mined,” it said. “During the period preceding the filing of the application, increased depth of mining caused Oxbow to encounter unusually difficult mining conditions. Oxbow continued to mine safely and to recover reserves that would not have been possible to recover economically were it not for the anticipated reduction in royalties.”
Historically, royalty revenues — which are typically a per-ton royalty plus an annual per-acre fee — are split evenly between the state and the federal government.