US Interior to Collect Billions from New O&G Fees in 2010

WASHINGTON (Dow Jones Newswires), Jun. 3, 2009

The U.S Interior Department has projected $14 billion in revenue collections for fiscal-year 2010, stemming from several new and increased fees.

A new fee on non-producing Gulf of Mexico offshore oil and gas leases would increase revenue by requiring lease holders to pay $4 per acre when leases are in non-producing status, Interior Secretary Ken Salazar said in prepared testimony before a subcommittee of the Senate Appropriations Committee on Wednesday.

The hearing addressed the Interior Department's fiscal-year 2010 budget proposal.

Salazar also said oil-and-gas royalty reform, a new fee for offshore facility inspection and an increased fee for processing onshore oil-and-gas applications will also affect 2010 revenue for the department.

The subcommittee hearing comes on the backdrop of calls for oil-industry reform and follows the circulation of a proposal by congressional Democrats to raise fees on the oil-and-gas industry. Democrats are proposing an 18.75% increase in the minimum royalty rate for onshore leases. The proposal would increase by 50% the current royalty rate of 12.5%.

Salazar said the department is reviewing current royalty policies.  

Copyright (c) 2009 Dow Jones & Company, Inc.


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Pat Williamson | Jun. 5, 2009
It is apparent or must be assumed that the U.S. government and most of the legislative body representatives, along with a magnitude of the general population of our country, do not understand the risk taken by Oil & Gas operating companies which drill and produce hydrocarbons for energy and many other byproducts of the petrochemical industry.

We, the people of the U.S. and global communities, too, are so naive as to believe what we hear on the TV news or read in newspapers, if any read at all anymore, that everything delivered there is absolute. All additional fees and increases on oil & gas companies, leases, etc. will be passed on to consumers. The fees are taxes! The taxes will be paid by every consumer that drives, wears clothes, uses medicines, etc., etc., etc.

Who is the government kidding? The government is raising taxes on every citizen and telling folks they're going after the oil companies. They're lying! They're growing government, grabbing what they can, and not doing one thing to develop a "real" energy policy for national security or the people of the good ole U.S. of A. It's a "FARCE."

Larry Bradley | Jun. 5, 2009
Wouldn't it be great if the robber barons in the government were required to publish for 60 days the specific uses of the money they plan to confiscate?

Also, would like to see Rigzone and other O&G related publications start substituting "tax" for the words "fee" and "royalty" in all stories like this. Let's call it what it is, even if the thieves in Washington won't.

Michael Zimmer | Jun. 5, 2009
I grew up in the oil & gas business. For years I never understood the lack of or "no mas" position in self-defense the industry has taken in defending itself against shameless attacks by cheap politicians. The industry as a whole has never had a public relations campaign aimed at educating the public about the effect of the industry on all of our daily lives. I was a petroleum landman in the 80s when the industry went "broke", causing me to move my family and start over in another career. That event was caused by politics as much as by anything else. The squeaky wheel gets the grease...let's use our clout to fight back against special interest causes that hurt American industry. Let's go on the attack.

M Silva | Jun. 4, 2009
Washington obviously wakes up in a new world every day. Surely the PENTAGON knows how much fuel is required to fly F-16s, F-22 Raptors, f-14s, c-133s & Air Force 1 with fighter escort.

Yet the PENTAGON stands by while politicians put this country at a National Security Risk. Should world conflict break out & deals cut by politicians that make the U.S. dependent on foreign imports of oil & gas become unstable & cut off, where does that leave our military?

I suppose we can run extension cords from wind generators thousands of miles away to operate mechanized platoons & battalions. I suppose we can execute SHOCK & AWE by mounting solar panels on fighter jets, & only fly on sunny days.

There is no lack of patriotism in this household. I currently have 2 sons in harms way, & another on the way. So my concern is not selfish for my own career for I have already lived a full & good life thanks to those who made far greater sacrifices to secure freedom.

However small a part I might have, & others in the oil & gas industry in making sure our military has all they need including fuel to ensure that every family that has been affected by one war or another in past & present has not been lost by the stroke of a pen from some politician that has no honor.

Oil companies are signing contracts with other countries due to global demand. Oil companies are not abandoning the U.S. The White House is abandoning them. But don't worry taxpayers oil companies won't be asking for your hard working money to bail them out. With the new regulations on drilling we can not do our part to help secure our freedom.

Which brings us to our next issue. When borrowing trillions of dollars from another region of the world, should our government bonds be insufficient collateral, exactly what will the White House use as collateral?

Phil Walton | Jun. 4, 2009
Just what you'd expect from the current administration. Cut exploration and production of federal leases and then raise the taxes. Buy more foreign oil and put US oil interests in the dump. Ken Salazar and the rest of the BHO administration are going to cripple the oil and gas industry worse than what occurred in the 1980s, and then expect rapid recovery when the US economy is in a worse bind.

Kat | Jun. 4, 2009
I am only 27 years old and I know enough about the way any industry works in a dominantly capitalist economy. With demand already low, production and drilling costs still inflated, and the cost of hydrocarbon down, raising taxes will not gain the government any money. Oil companies will back out of their leases because it is not profitable to drill right now and it will be too expensive to hold them. More jobs will be lost, there will be a mass avulsion to fields overseas and the US will be entirely dependent on foreign energy. Not a good place to be in with Russia, Venezuela, and other notorious countries teaming up. I see a very scary future ahead of me.

SMA | Jun. 4, 2009
This goes against +200 years of contract law. Does this mean that if we have a lease with the Federal Government they can change the terms of the agreement upon a whim in an effort to raise new revenues? This sends the wrong message to the American people and the companies that do business here in the US. If we really want energy independence, the government needs to encourage exploration and production, not discourage investments. We don't want to our government to be considered in the same vain as the Hugo Chavez nationalization of the oil fields in Venezula.

Someone needs to have a roundtable with the Feds and provide them with statistical information of the costs, the risks and the heafty investments that it takes to explore for oil and gas.

Mike Dibble | Jun. 4, 2009
I certainly understand everyone's concerns. I'm a DD who had an abysmal 3rd quarter (18 rig days) and an even worse 1st half (14 rig days). My wife and I have gone through all of our cash/emergency money as I'm sure most of you have that are out of work. I'm currently working in Mexico (how's that for irony?) along with a bunch of other guys from the U.S. and Canada. We're all glad to have work but the conditions are difficult.

I would like everyone to consider that maybe the Bush Admin. wasn't the best thing for the oil & gas industry. Here's why:

1) Cheney's secret energy policy meetings with the majors only reinforced the public's deep suspicions that Cheney, so recently departed from Halliburton, was more concerned with industry and corporate economic welfare than the economic welfare of American families. Many people still want to know why Cheney so adamantly insisted on asserting executive privilege to keep those discussions secret.

2) The de facto "look the other way" approach that Bush used with the financial and commodities markets contributed (note I didn't say caused) to the economic meltdown were experiencing and the operators who aren't drilling are the ones who don't have cash reserves and cant get lines of credit to run their drilling budgets. Its not the energy prices. Oil is certainly high enough to justify drilling and even though gas is abysmally low, I know for a fact that one operator in the 4 corners area is actually expanding their drilling program this year compared to what they've done in the last few years.

3) The markets also created the bubble we all experienced. Most American families and American businesses were getting "hosed" on their energy costs last year just as the economy was starting to tank and the operators posted insane profits on their books. Those headlines were fresh in many peoples minds as they worried about losing jobs and homes and voted in last years election. For many Americans, that "Drill, Baby, Drill!" nonsense Palin started was the final nail in McCain's coffin.

4) Anytime there is perceived political favoritism shown to a group or industry, there is almost always some kind of backlash when the social or political tide changes. At the ripe old age of 47, Ive been through a couple of these industry downturns and I can tell you that this industry needs stability more than anything. American families and businesses need stability in the energy sector more than anything. Political favoritism does nothing to create a stable business environment, it breeds public demands that government enact policies to counter their perceptions of favor and corruption. It makes people vote with their feet and pocketbooks whenever possible.

Some of the most intelligent people I've ever met are oil and gas industry professionals...if we're going to have discussions about the state of our industry, let's have an honest look at the facts of how we got here and have the courage to look into our souls to see where we could be better people. It time to grow up and get back to work people.

Done. Thanks, -Mike

Byron Tuck | Jun. 4, 2009
OPEC is cheering on the Democrats and those who have stipper leases have a new hope for increased oil and gas prices. The Democrats are creating support for a higher floor on oil and gas prices.

Art Vandeley | Jun. 4, 2009
We're just not "green" enough for Obama and his gang. Surprised? No way. More bad news to come in O&G? is certain.

"The United States is Closed to O&G Drilling and Exploration" -----future headline to come out of D.C.

Companies will go where it is cheaper to produce the same quality product and say good bye to dealing with this hostile administration.

Hope and Change = more dependence on foreign oil.

Tim Bandy | Jun. 3, 2009
This administration just does not get it. Today's oil prices went down due to a build in inventory. The reason for the build is we continue to import as much oil from Venezula, Iran, Iraq, etc. that we ever have despite the fact we are sitting on a massive "gold mine" of proven natural gas reserves.

How does Mr. Obama expect to reduce our dependency on oil if he continues taking steps to ensure less investment will be made to create or even retain jobs for Americans?

Why our politicians continue thumbing their noses at natural gas, which is produced right here at home and creates jobs for Americans, so they can import oil and LNG makes as much sense as Saudi Arabia exporting all their oil and using the proceeds to import fire wood as the sole means of their energy reliance. It just does not make sense at least to me.

Mr. Obama, you have brought 2 of the 3 American auto makers to their knees. As the majority stock holder in these companies, it should make it very easy for the government to allow Mr. Chu to have them manufacture only vehicles with sails or wind mills attached or run off karo syrup. You have fulfilled your campaign promise of bringing change, Mr. President. The members of OPEC are proud of you.

james steele | Jun. 3, 2009
I have been laid off from East Texas land - based drilling since Feb. 11, 2009, and I agree with all of the people commenting on this article. My question is will any of these politicians ever read (much less heed) any of these pleas for common sense, or should we all just go to our back yards and talk to the dirt that we are all seeing so much of lately? Something has to be done and soon.

Larry Strong | Jun. 3, 2009
If things are not bad enough already within our O&G industry. Why in the world would a clear thinking group demanding "CHANGE" invite more unemployment in our industry? I just don't get it. President Obama says he and his other party members want to create jobs. If he and his group really had things in order, they would not have increased these amounts.

I have over 35 years of drilling experience which I felt good about 2 years ago. Now I am 54 and starting all over again. Just not right!

Herman | Jun. 3, 2009
I think they're abusing the fact of being in office and the ability to raise taxes on an industry that can affect the economy even more by raising prices on its product to backlash their increased taxes, by causing an inflationary spiral which we are headed for backing these destructive policies.

We need the oil and gas industry to support our economy, but if provoked they can cause serious problems for this country. Taxing them is not the way to fix the problems, especially without new areas in which to drill.

Darren Johnson | Jun. 3, 2009
I've been out of work for 6 months and I am a geophysical consultant. Exploration is definitely done for, at least in the US. It has become difficult enough these last few years working on Federal lands with a supposedly friendly administration; I can't imagine what will happen under an administration that is openly hostile to our endeavors.

Pat Blackmer | Jun. 3, 2009
I am a 62-year old drilling consultant from Colorado. I really do not understand Ken Salazar's actions. Several months ago, I listened to him being interviewed on a offshore platform. He was emphatic about continued oil and gas exploration and production. "We must keep drilling" he said. And now...I have been out of work, along with 90% of the gas drilling industry here in W.Colorado for 6 months and no positive signs of this situation turning around.

We cannot be green overnight. It has taken Brazil 50 years to achieve 80% green. Natural gas is the cleanest fuel we have going for us and we need to be drilling, producing and storing NG and not importing it.

I have written to Mr. Salazar stating these same concerns. I think everyone should do the same.

Chris | Jun. 3, 2009
This is only going to make things worse. As someone who just got laid off from my job on a drilling rig in the Gulf of Mexico due to fact that companies are not wanting to drill as much in the gulf, I think that increasing these fees will push them to do more drilling overseas and in the long run cost more Americans jobs and make us more dependent on oil from from other countries.

Nolan Johnson | Jun. 3, 2009
I think Mr. Ken Salazar, Steven Chu, and President Obama don't have a clue as to what they are doing to the oil and gas industry. Since taking office the U.S. rig count has strung to 855.

We are in for a rough road ahead.

Tommy Richoux | Jun. 3, 2009
The US government is hurting the oil industry bad. I have not worked for 7 months. I am a drilling/workover/completion consultant. I don't know what to do. I am fixing to try and sell my home. I am 61 years old.

I think the government should be trying to help us out. You want to lower work force numbers, put us back to work. Everything was going along fine until the government got greedy again.

suzanne | Jun. 3, 2009
Oh Boy! Do politicians really think these fees will cause production to increase or even remain at current levels?

At some point, entire fields will be shut-in because the Government will have shown they don't value the science, technology and the uses of fossil fuel energy.

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