US Officials to Propose Changes to Onshore Oil Royalty Rates

WASHINGTON (Dow Jones Newswires), Jan. 11, 2012

The Obama administration is close to proposing changes to the royalty rate it charges oil and natural-gas companies operating on federal lands, a top Interior Department official said Tuesday.

Such a move is expected to lead to higher royalty rates for energy companies and more revenue for the federal government.

Speaking at a Platts Energy Podium event, Interior Deputy Secretary David Hayes said U.S. officials want "to make sure the American taxpayer is getting appropriate value for oil and gas development on our public lands."

The U.S. charges a lower royalty rate for oil and gas on federal land than on federal waters. The rate for onshore development is 12.5%, while offshore development is close to 19%, Hayes said.

Hayes said his department is examining the royalty rates charged by state governments and private land owners who lease their land to oil and natural gas companies. In many cases, states and private landowners charge higher rates than the federal government.

"It's not a trivial exercise, obviously, to identify what potential royalty rates might make sense," he said.

The American Petroleum Institute, a group that serves as the main lobbying arm for the oil and natural gas industry, said an increase to onshore royalty rates will hit smaller producers particularly hard.

"Any increase in royalty rates is inevitably going to drive away new investment," Erik Milito, director of API's upstream operations, said.

The Interior Department also announced Tuesday it would hold 32 auctions for oil and gas leases on federal land in 2012. It will offer up parcels of land in California, Colorado, New Mexico and Wyoming, among others.

In 2011, the department collected about $250 million from auctioning off onshore leases, up from about $210 million in the previous year.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Bean | Jan. 13, 2012
I agree with most of the previous comments, spread the word and get O out this is just another attack against capitalism.

Bob Yorgason | Jan. 13, 2012
I think Obama will do anything he can to keep us from becoming independent from OPEC

Glenn | Jan. 13, 2012
The feds still don't get it. We have a spending problem, not a tax problem!!!!!!!!!!!!!!

Oscar Sanchez | Jan. 12, 2012
Its a shame, I just see these guys looking for ways to increase the government revenue by taxing the companies that are creating more jobs in several states but without showing any trend to reduce the government expenses. Reduce bureaucracy.

Rob Johnson | Jan. 12, 2012
Another overreach by the Federal Government. Instead of looking at increased revenue do what other companies have had to do and downsize. The Federal Government is way too bloughted and needs to be trimmed. It is time to stop growing Government.

Jay Beigh | Jan. 11, 2012
19% royalties do not appear to be having a chilling effect in the Williston Basin. May not be what we wish to see, BUT the offshore players are somehow rationalizing continuing to operate and transact. Consumers, as always, will bear the costs ultimately, arguably getting it back on the other side of the deal, if they are US citizens (or should I say taxpayers/consumers... how we are labelled by TPTB.

Rick Morgan | Jan. 11, 2012
the (mis)administrations version of BOHICA.

Tom Williams | Jan. 11, 2012
The logic here is that the government would get more money; but at low commodity prices like we have today in natural gas, it would actually reduce the revenue the government collects. Companies will not drill nor produce flat out if they are not making any money. This proposed thought process is typical of the current Obama Administration and the anti-oil and gas policies demonstrated by Secretary of Interior Salazar. The 19% royalty for offshore is high, particularly in high risk offshore wells and an increase to this would move more money to offshore in other countries and significantly reduce revenue. While I am not advocating a change; if the DOI would propose an increased royalty based on a higher commodity price like $5.00 mfc gas (based on 2011 dollars) and actually reduce the current royalty rate, the government revenue would increase from both bonuses and gross royalties. Likewise if the government would set aside and use a portion of royalties collected for R&D, safety and environmental programs; we would establish more reserves, have a much more efficient and safer industry. It would increase US jobs and increase our competitiveness in the world markets. Such a move would require smart leadership in energy we are sorely lacking in the U.S. today.

TOM JONES | Jan. 11, 2012
They should change the rules on offshore drilling also! The oil companies now enjoy production w/o royalties for a period of time in wells 15,000 or deeper. This should be changed and this variance start at 20,000 because of changes in the technology of Deepwater Drilling and the willingness to spend money on deeper targets which haven to be proved lucrative. The bottom line drilling to 15000 is now chump change !!!

Eduardo RIVAS | Jan. 11, 2012
I agree with this action, but should be study well base on the profit getting from this BID COMPANIES, but the incoming extra budget should be used to build many government's Technical schools where poor people could study.

jon lally | Jan. 11, 2012
Raising any more tax will only result in more cost for the end user. Gov is too much in industry

Boone | Jan. 11, 2012
This is what democrats do. Raise taxes.


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