US Interior Department Considers 'Variable' O&G Royalty Rates

According to Reuters, the Obama administration is mulling "variable" royalty rates for drilling on federal lands that would reflect the difficulty of tapping oil and natural gas supplies.

Speaking at the Reuters Global Climate and Alternative Energy Summit, U.S. Interior Secretary Ken Salazar said that the Interior Department intends to issue proposals by the end of the year to update the royalty rates and ensure that oil companies pay reasonable rates as oil prices rise.

"We are taking a look at that ["variable" royalty rates] to see what makes sense in getting a fair return for taxpayers," Salazar is quoted as saying.

With this option, rates would be higher for lower-risk oil and gas fields, as well as when companies know in advance the reserves' estimated location. Conversely, the rates would be lower for higher-risk oil and gas exploration areas and exploratory drilling similar to "wildcatting", which may or may not result in a commercial discovery, Reuters noted.

Additionally, Salazar mentioned that the Interior Department is currently assessing the government's royalty-in-kind program, as well as a reorganization of the Minerals Management Service and Bureau of Land Management -- agencies that collect royalties and issue drilling leases, Reuters reported.


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