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.

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