Obama To Hike Royalties On Oil And Gas Drillers

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Michael Bastasch DCNF Managing Editor
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The Obama administration may be ready to hike royalties paid by oil and gas companies drilling on federal lands. The administration says they want to get the best return for taxpayers, which likely means a hike.

“It’s time to have a candid conversation about whether the American taxpayer is getting the right return for the development of oil and gas resources on public lands,” Secretary of the Interior Sally Jewell said in a statement.

Currently, oil and gas royalty rates are set at 12.5 percent of the value of production, but Jewell says this has to change because many states and private landowners charge more for drilling. The Department of the Interior is also looking to raise existing caps on civil penalties in the wake of the 2010 Gulf oil spill.

“The [Bureau of Land Management’s] regulations have not kept pace with technological advances and market conditions, so this is an important information-gathering step as we seek to improve the way the federal government does business,” Jewell said.

But the move to raise royalties may hurt, not help, taxpayer returns in the long-run. Oil and natural gas production on federal lands are about 10 percent and 31 percent, respectively, below 2010 levels, according to government data. Production has increased slightly in the last couple of years, but that could change if royalty rates are hiked.

Declines in federal production, however, stand in stark contrast to an 89 percent boom oil production and 37 percent gas production boom on state and private lands. Republicans have come out against possible royalty hikes.

“Hiking the royalty rates will further curtail production and decrease revenue flowing to the federal Treasury,” Julia Bell, Republican spokeswoman for the House Natural Resources Committee, said in a statement.

“The administration’s agenda has once again been prioritized above rural schools and communities with federal lands, most of which are in the West, that rely on revenue from energy development for education funding,” Bell said.

A 2011 study prepared by analysts at IHS CERA for the federal government found that federal agencies were “levying a higher government take than other jurisdictions relative to their remaining recoverable reserve ranking.”

Oil prices are also dramatically lower than a year ago, making a royalty hike even less attractive to oil and gas drillers.

“Despite the renaissance on state and private lands, energy production on federal lands has fallen, and yet another set of costly changes to federal rules could drive more economic development and job creation off public lands,” Erik Milito, upstream industry director for the American Petroleum Institute, told the Houston Chronicle.

“Clear, consistent leasing and royalty terms are part of what makes investments possible, so preserving certainty in the process is critical for the consumers and workers that benefit from domestic production,” Milito said.

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