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Salazar: It's not war on oil and gas; it's taxation

Bob Tippee
Editor

In case anyone finds the difference between war and larceny puzzling, US Interior Sec. Ken Salazar offers help.

"This is not, as some have suggested, a war on the oil and gas industry," Salazar assured directors of the American Petroleum Institute Mar. 19.

"This," according to the secretary's analysis in a prepared text, is President Barack Obama's program of change: "Restoring honesty and fiscal responsibility to the budget. Making hard choices. Seeing where we can get a better deal for the American taxpayer."

Troubling words, these.

According to Salazar, "Interior has not systematically reexamined how the federal government is compensated for extraction of oil and gas for over 25 years."

So it must have tumbled by accident into its January 2007 increase in the royalty on deepwater leases to 16.67% from 12.5%. But who's to quibble?

"We are going to take another look at royalty rates," said the cabinet officer who, since taking office, has been busily trimming producer access to federal land, onshore and off.

"Tax breaks that are no longer needed, and which the American people can't afford, will disappear," he went on.

This, of course, already is clear in a proposed federal budget that would, if enacted, use the tax code to ravage investment in onshore drilling and impose a new offshore excise.

Two days before Salazar spread his cheer in the API boardroom, Mary L. Kendall, Interior's acting inspector general, spoke at a congressional subcommittee hearing of the insufficiency of pressure on federal offshore leaseholders to produce oil and gas.

"Production activities are not required to commence within the primary lease term," she said, keeping alive the "use-it-or-lose-it" issue that reared its ludicrous head last year (OGJ Online, Mar. 18, 2009).

There is, in fact, no reason for leases to stipulate production. The money and trouble invested in offshore leases constitute all the incentive leaseholders need to produce oil and gas.

Alas, the Obama team evidently distrusts market incentives and sees no contraction in policy inducements to rush oil and gas production from a static lease inventory for less money.

But, hey, it's not war.

This feature will appear next on Apr. 3, 2009.

(Online Mar. 20, 2009: author's e-mail: bobt@ogjonline.com)


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