Salazar defends proposed increased costs for producers

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Mar. 3 -- US Interior Secretary Ken Salazar defended plans to increase oil and gas royalties and fees on federal leases as he testified Mar. 3 before a US Senate committee on his department’s fiscal 2011 budget request. He did not respond directly to one senator’s strong attack on the Obama administration’s proposed oil tax reforms, however.

Salazar also told the Energy and Natural Resources Committee that the US Department of the Interior is moving as quickly as possible to complete a new 5-year Outer Continental Shelf plan as it simultaneously tries to resolve problems with the current one. “The OCS and how we move forward has been one of the huge issues within the DOI. We hope we can make an announcement on how we plan to move forward [later] this month,” he said.

Other committee Republicans strongly criticized plans which would increase producers’ operating costs on federal leases. “I remain concerned about the administration’s apparent war against oil and gas production, and particularly jobs. These are hard-working people who have invested blood and sweat,” said John A. Barrasso (Wyo.). “The administration likes to talk about the future of natural gas, yet it also has proposed regulations which could drive this industry into the ground.”

Saying that between 2006 and 2009, the average oil and gas lease sale held by the US Bureau of Land Management produced a half million dollars in revenue, Robert B. Bennett (Utah) noted that the most recent one last week in his state offered four tracts and sold one, producing $3,526 in bonus bids. “My state’s legislature and governor get very concerned about the amount of revenue that’s been lost which they were used to getting” as their share, he said.

Salazar said county commissioners from Utah and members of the Independent Petroleum Association of Mountain States, “which has not been particularly friendly toward our program,” met with DOI officials Feb. 2 at the department’s headquarters. “With all due respect, Senator, I would beg to differ,” he told Bennett. “I believe dramatically lower natural gas prices have reduced interest in leasing. The overall economics have driven down the numbers you alluded to, and not the changes we are making to create more streamlined, certain leasing.”

‘Rush to lease’
Responding to Barrasso, the secretary said the Obama administration supports oil and gas leasing but believes it should take place in the right way. “The reality is that most of the leasing, and the rush to lease, during the previous administration led to significantly more protests and challenges. There was a failure at the top to consider where leasing should take place. We believe it should be where oil and gas is most likely to be found. We want to be proactive with the industry in determining that,” he said.

Earlier in the hearing, Salazar observed that DOI’s 2011 budget request reflects current economic conditions. “When you think of the deficit situation this country is immersed in, the [higher oil and gas] fees are all consistent with what we think is appropriate. I don’t think any of the fees we’re talking about are going to put anyone out of business. There is an oil and gas resource on our public lands that’s still going to be out there,” he said.

Committee Democrats were generally more complimentary, including Mary L. Landrieu (La.). “There’s a tremendous amount of positive oil and gas development, both onshore and offshore,” she said. “I have just been given information about the Haynesville Shale that suggests we have just found 250 tcf there from just one discovery. The discoveries of natural gas in this country are beyond what even the industry expected, and you have to be optimistic to be in that business.

“It seems very contrary to place heavy taxes on this industry when we want to be energy-sufficient. I want you to deliver that message to the administration,” she continued. “There’s fierce bipartisan opposition to [the White House’s] proposals to tax this industry. They are counter to creating jobs and counter to energy independence.”

Mark Udall (Colo.) told Salazar he has taken a balanced leasing approach while remaining a strong advocate for more domestic gas development. When Robert Menendez (NJ) sought assurance that US Minerals Management Service policies and enforcement will keep a major oil spill from occurring on the OCS, the secretary responded that MMS is doing everything it can to minimize problems.

Moving ahead
Lisa Murkowski (R-Alas.), the committee’s ranking minority member, said Alaskans were still upset about the US Army Corps of Engineers’ recent aquatic resource designation decision within the National Petroleum Reserve-Alaska and asked if it will affect leasing activity there. “We plan to examine what happened and try to find a solution that works,” Salazar said. “When you work with the executive side of government, there are lots of players. We don’t control the Corps of Engineers or [the US Environmental Protection Agency]. It is our intention to continue moving forward with leasing on NPR-A. We have a lease sale scheduled for this summer, and vast amounts already have been leased. We do not intend to move back.”

Murkowski told him that Alaskans also are concerned about uncertainties centered on the administration’s OCS plans. “You are correct in saying it’s one thing to issue a lease and another to support its development. We are not yet at a final point with respect to the OCS. We are attempting to pull together a final plan which will cover both existing and future activities,” Salazar replied.

“It has been difficult to do that, in large part, because of the failure in the 2007-12 plan to perform the necessary environmental studies that the court required,” he continued. “I had no intention to revisit it when I became secretary, but the second-highest court in the land said that [DOI] had not followed the necessary environmental procedures. We established that we could go ahead on the Gulf Coast part of the plan but had to address other segments. I hope we are close to making a final plan that will survive environmental challenges.”

Salazar said with respect to the next 5-year plan, “We held hearings and sought comments. We are going through what we received and are very close to deciding where we want to go . . . When you see 500,000 comments, they are out there and available for public viewing . . . You, as members of the US Senate, and other people in this country are entitled to know where we’re going on the OCS, and I hope we can provide some clarification within this month.”

Contact Nick Snow at nicks@pennwell.com.

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