US Interior Secretary Open to Scaling Back Planned Oil Tax Hikes

WASHINGTON (Dow Jones Newswires), Mar. 25, 2009

U.S. Interior Secretary Ken Salazar expressed flexibility on scaling back an Obama administration proposal for $31.5 billion in new revenue from the oil and gas industry.

"We're willing to listen," Salazar said in an interview on Wednesday with Dow Jones Newswires. "If it is going to have a disproportionate impact on a mom-and-pop kind of operation I do think that's something that should be taken into consideration."

Small, independent producers have warned about two tax breaks in particular that the Obama administration has proposed repealing: one that allows firms to write-off intangible drilling costs such as renting rigs, and another allows companies to take the depleting value of oil and gas reserves off their tax bills.

Repealing both of these, says head of the Stripper Well Association Dewey Bartlett, Jr., cuts so drastically into the slim profit margins his members make, that the impact will be immediate. He says not only will the small firms not drill more wells, but if any well parts break, they're a lot less likely to be replaced.

The Interior Secretary said that in general, "the oil and gas companies have all the incentives they already need in terms of moving forward with exploration and production."

Despite the major change in policy stance toward the oil industry under the Obama Administration, Salazar earlier this month told top oil company officials that he wasn't conducting "a war on the oil and gas industry."

Salazar also said that he was pleased with the $703 million in bids that were received for the right to drill on 1.9 million acres offshore of Louisiana, Mississippi, and Alabama.

While developers offered less money for each block of land than in the past two years amid a slump in oil and gas prices, "I don't think that we ought to allow this temporary lull in prices dictate what our policies are going to be," Salazar said.

"Any kind of oil and gas play from the time that it is leased out to the time that it's developed takes many years," he said, adding that prices wouldn't be depreseed "for very long." Crude oil prices have fallen precipitously since last summer, when they hit all-time highs north of $145 a barrel. They dipped below $40 a barrel in February but have since risen to the mid-$50s due to production cuts made by the Organization of Petroleum Exporting Countries as well as signs of stabilizing demand.

"I think we need to move forward with our conventional oil and gas program and not be confined essentially because of the current depressed prices of oil and gas," Salazar said. "Any kind of oil and gas play from the time that it is leased out to the time that it's developed takes many years. I don't expect that we're going to be at $40 a barrel oil for very long."

Salazar spoke before he headed to a hastily arranged White House energy-policy meeting. He said that the talks with White House staff would include a discussion of energy development in the U.S. coastal waters, and renewable-energy development, both offshore and onshore.

The Obama administration is making a big push to develop the country's renewable energy resources by establishing renewable-energy zones, both offshore and onshore. The administration is also attempting to develop a nationwide electricity system to ship renewable energy around the country and reduce the use of fossil fuels.

The Interior Department "is moving forward with business as usual with the exception of those areas where we think that the Bush administration overreached," Salazar said. He cited a recent decision to cancel 77 leases to drill for oil and gas in wilderness areas of Utah, leases that were offered in the waning days of the Bush administration.

The Interior Department is reviewing whether to put some or all of the 77 parcels back up for lease, and "I would expect that by the end of May we will have a plan on how we're going to move forward."

As with other parts of the Obama administration, the Interior Department faces a staffing shortage as it struggles to win Senate confirmation for key appointees. The No. 2 spot remains unfilled as U.S. Sen. Bob Bennett, R-Utah, tries to derail the confirmation of nominee David Hayes as a way to protest the decision to cancel the 77 leases.

In the meantime, the Interior Department has yet to fill a position leading the Office of Surface Mining, something which is slowing down its review of a last-minute mountaintop mining rule approved under the Bush administration.

Under the rule, companies that blow off mountaintops to get at the coal underneath won't have to maintain a 100-foot buffer zone between nearby waters if it isn't reasonably possible to do so. It took effect on Jan. 12.

"We are looking at our own rule" to determine "whether or not that rule needs to be changed," Salazar said. "Once I have my director on board it's going to be one of my priorities."

While the search has been narrowed down to leading contenders, "the vetting process is very extensive," Salazar said. "It will hopefully happen sooner rather than later."  

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


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