US Interior budget request contains cost increases

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Feb. 3 -- US Interior Secretary Ken Salazar said the nation’s oil and gas industry will remain an important contributor to resource management as he presented the Department of the Interior’s proposed fiscal 2011 budget on Feb. 1. He also said industry would have to pay more to produce those resources.

Noting that he has ordered the US Bureau of Land Management to review its royalty rates, which he said are 20-30% less than what Texas collects, Salazar said, “We believe taxpayers should get a fair return on their resources.”

He also noted that markets—and not federal policies—will determine how extensively oil and gas resources on public lands are developed. “Some people will argue that a smaller number of rigs drilling reflects less interest. The fact is they aren’t out there right now because natural gas prices are depressed,” Salazar said.

The budget request anticipates fiscal 2011 revenue of $10 million from a new onshore inspection fee, which Interior said would cover 25% of expected oil and gas inspection costs, $10 million from a proposed doubling of an offshore inspection fee established under the 2010 budget, and $2.5 million from a $4/acre fee for nonproducing leases.

DOI also will ask Congress to repeal Section 365 of the 2005 Energy Policy Act, which diverts mineral leasing receipts from the US Department of the Treasury to a BLM permit processing fund and prohibits BLM from charging producers for processing onshore drilling permit applications. BLM would promulgate regulations to begin charging to process the applications once the provision was repealed.

Asked if the additional costs might prove excessive for producers, Salazar replied: “I think the oil and gas industry will do just fine.”

Negative impacts
In a Feb. 2 position paper, the Independent Petroleum Association of Mountain States warned that the higher costs would remove capital from domestic energy development and production, and cost more jobs.

“Operating on federal lands is already much more time-consuming and costly compared to operating on private lands,” it said. “The sum total of all the negative proposals from DOI and the increase in fees and taxes will be a decrease in production on federal lands, a reduction of jobs that result from the productive use of public lands, and a decrease in the production of energy owned by Americans.”

DOI’s budget request proposed saving money by having producers pay a bigger share of programs’ administrative costs. The IPAMS position paper noted that the industry “already more than pays for the administration of the federal onshore gas and oil program by return $46 for every dollar spent. When income and other taxes are factored in, companies return $123 for every dollar spent administering the program.”

The proposed inspection fees, nonproducing acreage fee, and royalty rate increases would be in addition to $36.5 billion of tax increases in the proposed federal budget which would reduce capital investment in domestic oil and gas by 30-50%, said Marc W. Smith, IPAMS executive director.

“Every day, I hear concerns from our members about whether they will be able to continue developing energy in the West,” Smith said, adding, “I have to wonder if shutting down all energy production on public lands is the ultimate goal of this administration. They are forgetting that these are vital energy resources that belong to all Americans.”

Drilling permit pilot
In an interview following DOI’s budget presentation, BLM Director Robert V. Abbey said a pilot program designed to facilitate drilling permit application processing will be retained. “We’ve learned a lot from it, particularly the benefit of involving other government agencies and stakeholders before the final decisions are made,” he told OGJ.

He also said new onshore leasing guidelines that he and Salazar announced on Jan. 6 were a response to an increasing number of protests and their resulting delays. Protests were filed against half of BLM’s proposed oil and gas leases during 2009, he pointed out. “We’re not naive. We realize our reforms won’t satisfy everybody,” Abbey added. “But by proceeding more carefully, we’ll be better able to defend our decisions if they’re challenged in court.”

DOI’s fiscal 2011 budget request anticipated a nearly 45% increase in receipts to an estimated $13.98 billion from fiscal 2010’s projected $9.65 billion from coal and hard-rock mineral as well as oil and gas activity. US Outer Continental Shelf receipts were expected to jump $3.69 billion year-to-year, or 102%, to $7.23 billion. Onshore receipts were budgeted to climb by $651 million, or 16%, to $4.04 billion.

Salazar said he expected to make announcements soon which he hoped will clarify uncertainties surrounding the department’s offshore oil and gas leasing program. But he added that DOI and MMS have had to address two 5-year OCS programs simultaneously, which has caused delays.

The proposed budget said that the OCS program for 2007-12 includes six lease sales in fiscal 2011, including two in the Gulf of Mexico and one in the Beaufort Sea off Alaska. It said that a “special interest” sale in Alaska’s Cook Inlet also could be held. “However, the resolution of ongoing litigation and the level of industry interest in certain frontier areas may affect the number of sales actually held,” it continued.

Royalty management
MMS would receive $364.8 million under the proposed budget, $16.5 million more than the enacted level for fiscal 2010. The money includes $10 million to terminate the royalty-in-kind (RIK) program and move back to the more traditional cash-based royalty-in-value program, MMS officials said.

A reduction in outlays from royalty receipts previously used to fund RIK activities will offset a requested appropriations increase to enhance compliance activities and increase audit capacity, they indicated.

“This budget request will enable us to effectively terminate the RIK program without any net increase in the cost of our royalty management work,” MMS Director S. Elizabeth Birnbaum said in a statement. “It reflects our commitment to ensuring that our federal and American Indian energy and minerals revenues are accurately reported and paid in compliance with laws, regulations, and lease terms.”

The request also contains $4.4 million to fund technology to assess oil and gas potential and fair market value of OCS tracts offered for lease, according to MMS. It said that the money would be used to fund inspections, which have increased because of the number of new deepwater facilities on the OCS. Additional resources totaling $3.7 million will be used to improve royalty compliance and ensure companies are paying proper royalties on processed and transported gas, it added.

MMS and BLM also would receive more money for renewable energy projects under the proposed budget, reflecting a major Obama administration priority. “We’re very aware of climate change and the need to consider potential impacts,” Abbey said. “We also recognize that there’s still a lot of oil and gas left to develop—responsibly—on our public lands.”

Contact Nick Snow at nicks@pennwell.com.

Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

FourPoint Energy to acquire Anadarko basin assets from Chesapeake

07/02/2015 FourPoint Energy LLC, a privately owned Denver company, plans to acquire oil and gas assets from Chesapeake Energy Corp. subsidiaries Chesapeake Ex...

Puma Energy completes purchase of Murco’s UK refinery, terminals

07/02/2015 Singapore-based Puma Energy Group Pte. has completed its purchase of UK midstream and downstream assets from Murco Petroleum Ltd., a subsidiary of ...

BP to settle federal, state Deepwater Horizon claims for $18.7 billion

07/02/2015 BP Exploration & Production Inc. has agreed in principle to settle all federal and state claims arising from the 2010 Deepwater Horizon inciden...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected