It basically came down to this: US Sen. Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee's ranking minority member, believed that oil and gas production on federally controlled acreage dropped, as production grew on privately held land, because the Obama administration has created such a hostile environment that there's less interest in federal leases.
US Sec. of the Interior Ken Salazar, who was before the committee on Feb. 28 to discuss the department's proposed fiscal 2013 budget, responded that the strategy, which includes a proposal to increase royalties by about 50%, was to get a fair return for US taxpayers. "Texas, Alabama, and other states have higher royalty rates than what the US has," he said.
Murkowski said a recent IHS-CERA study for DOI found that the US is levying a higher government take than other jurisdictions relative to their remaining recoverable reserve ranking.
The study also found that bonus bids—which can top $3 billion in a single lease sale—aren't being taken into account when the government assesses whether taxpayers receive a fair return on resource production, she indicated.
"This was a DOI study. What came out was pretty telling," Murkowski continued. "It said that efforts to increase royalties will not make us more competitive."
Salazar disagreed. "My impression is that the study you're referring to has a very different conclusion than what you indicate," he told her.
The full report, "Comparative Assessment of the Federal Oil and Gas System," came out in November 2011. It's available online at the US Bureau of Ocean Energy Management's web site in the Oil & Gas Energy Economic Programs section under Energy Economics, then Fair Market Value.
More than take
The report, which BOEM and the US Bureau of Land Management jointly commissioned, did conclude that the agencies "are levying a higher government take than other jurisdictions relative to their remaining recoverable reserve ranking." But it also said that government take should not be the only measurement of whether a fiscal system is attractive.
"If it is used at all, it should be combined with other measures of profitability, fiscal system flexibility, revenue risk, and fiscal stability in order to properly assess petroleum fiscal systems," the report said.
Deputy US Interior Sec. David J. Hayes, who also was at the hearing, said DOI began to reevaluate royalty and other oil and gas charges after a 2008 Government Accountability Office study suggested that they were too low.
"Several other studies have been made, and we have another under way," he told the committee. "[Their] cumulative conclusions…will determine what we do."
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