As a House and Senate energy conference tried to resolve differences and produce a final energy bill, the Interior Department and its two main divisions that regulate oil and gas exploration and production took two actions and proposed a third.
The Bureau of Land Management revived a proposal to impose new fees and increase others to cover the costs of environmental studies, monitoring activities, and other processes related to its regulation of federal oil, gas, and other mineral resources.
The July 19 proposal includes a processing fee for oil and gas drilling permit applications. BLM said that, in reviewing fees that it proposed in 2000 for the latest proposal, it initially determined that it costs $8,000-10,000 to process each oil and gas drilling permit application.
There were not enough permit applications to drill exploratory wells during 2 years of analysis to determine a final estimated average cost, so BLM’s proposal would set a target fee of $2,500, which would be phased in from $500 the first year and increase by $500/year until the target was reached, while BLM continues gathering data.
The base fee would be adjusted for inflation annually and would apply to permit applications filed on or after Oct. 1 each year, BLM said.
The Independent Petroleum Association of Mountain States quickly criticized the proposal.
“Congress has rejected similar efforts in the past,” said IPAMS Executive Director Marc Smith. “Yet efforts by the Office of Management and Budget and the Interior Department continue down this path, demonstrating their unwillingness to help reduce natural gas prices, which have tripled in the last 4 years.”
Smith suggested that BLM concentrate instead on inefficiencies and inconsistencies within its various field offices, which force some gas producers to wait more than a year for a federal permit, months longer than the time it takes to get similar permits for state and privately held land.
Smith warned that if the proposed fee resulted in even 100 fewer wells being drilled in the Intermountain West it would equate to more than $100 million being taken away from local economies.
The proposed cost recovery rule also does not account for the nature of oil and gas exploration, he added.
“Exploration projects would need to be conducted on a ‘just-in-time’ permitting basis. That simply doesn’t work in this industry when federal agencies are involved in the process,” he said.
BLM is accepting comments on the proposal through Aug. 18.
Incentive terminated
BLM also announced July 21 that it plans to stop royalty rate reductions for stripper wells starting Feb. 1, 2006. It cited regulations that allow it to terminate the reductions when oil’s inflation-adjusted price is more than $28/bbl for 6 consecutive months.
“Terminating program benefits protects the interests of the public by ensuring that royalties due on public resources are not reduced inappropriately,” said Tom Lonnie, BLM’s assistant director for minerals, realty, and resource protection. “Even though we won’t continue to offer this incentive while the price of oil is high, we expect stripper oil wells will continue to produce, given the current price of oil.”
The action will affect 615 federal lessees operating 20,000 wells, mostly in California, Wyoming, and New Mexico, according to BLM. The incentive saved these operators an estimated $52.9 million last year as they produced 24.9 million bbl of oil and paid royalties of 0.5-11.7%, depending on average production rates, it said.
The agency initiated royalty rate reductions for onshore oil wells producing less than 15 b/d in 1992. BLM studied the royalty rate reduction issue in 1997 and extended the program a year later after completing an assessment.
It concluded more recently that it was no longer necessary to provide a royalty rate reduction incentive for stripper wells when it found that West Texas Intermediate crude oil prices had been more than $28/bbl (adjusted for inflation) at all times during the last 6 months.
Regulations require it to wait 6 months after publishing a notice before terminating the incentive, which is why it is scheduled to cease next Feb. 1, BLM said.
Floating platforms
Meanwhile, the Minerals Management Service issued a final rule on July 19 to streamline permitting for floating platforms (OGJ Online, July 22, 2005). The rule also incorporated, by reference, oil and gas industry standards pertaining to floating production systems. Previously, MMS regulations did not address floating facilities separately from fixed platforms.
The rule extends federal offshore platform and structure regulations to floating production systems. MMS said it came in response to the rapid growth of deepwater exploration and development and the oil and gas industry’s increasing reliance on floating platforms.
MMS noted that in 1993 deepwater areas of the Outer Continental Shelf (water depths greater than 1,000 ft) accounted for 12% of the oil and 2% of the gas produced domestically offshore. By the end of last year, said MMS, deepwater areas accounted for 62% of the oil and 32% of the gas produced offshore in the US. ✦
