Oil and gas producers would pay $10.8 million in user fees, including $9 million in permit processing charges, under the Bureau of Land Management's proposed fiscal 2006 budget. The fees would more than offset a slightly reduced appropriation and allow the Department of the Interior agency to increase the budget for its energy and minerals programs by $9.1 million to $117.6 million.
BLM said the additional money would come from a proposed rulemaking that would increase current charges "to a level that more closely reflects the cost of providing these services."
In addition to the permit processing charges, the agency expects to raise rental rates for oil and gas leases.
"The estimated revenue from additional user fees assumes continuing high demand for oil and gas lease transactions and drilling permits," it said. By combining these revenues with the slightly reduced appropriation, BLM expects to increase its energy and mineral capability in the coming fiscal year, "allowing more timely processing of energy leases and permits."
No surprise
The proposals to increase oil and gas lease revenue did not catch producers by surprise.
The US Minerals Management Service also plans to impose new permit processing fees and increase rental fees, noted Lee O. Fuller, vice-president of government relations at the Independent Petroleum Association of America in Washington, DC.
"We had been hearing signals from various conversations with officials at the two agencies the last several months," he said.
Sen. Jeff Bingaman (D-NM), the Senate Energy and Natural Resources Committee's chief minority member, also raised the point at the committee's Jan. 24 natural gas conference, according to Fuller. "We knew it was in play as a concept. Now, it's a reality," the IPAA official said.
That doesn't mean Congress will approve it, suggested Andrew A. Bremner, government affairs director at the Independent Petroleum Association of Mountain States in Denver. "It's unfortunate that the Office of Management and Budget continues to propose cost recovery on the oil and gas program," he said. He also questioned the idea that BLM needs to charge permit-processing fees to cover operating costs. The proposed budget projects $173.1 million in rents and bonuses and more than $2.48 billion of royalties from a federal onshore oil and gas program that costs $117.6 million to operate.
"That's a more than 2,900% return. So in many respects, we believe our industry's costs are more than taken care of," Bremner said.
BLM's proposed budget also is short of specifics on how it would use the extra money it plans to raise, he continued.
"Over the past few years, appropriations have increased for particular field offices as well as the program overall. BLM has put money into tackling the backlog of permits. But I don't know if it has a specific plan to address problems in the process," Bremner said.
"Also, the industry pays for multiple surveys and [National Environmental Policy Act] documentation by outside contractors. Now, the BLM proposes a fee so it can review documentation we've already paid for," the IPAMS official maintained. "Unofficially, we're already paying for quite a bit of work outside what BLM does. Now, it's asking us to pay for what it does inside the program."
Interest still high
Neither association official expected the prospect of higher leasing and permitting expenses to dampen industry interest in Rocky Mountain federal oil and gas inventories, however. Fuller pointed out that federal land in the West remains one of the most cost-effective areas in which to develop oil and gas because so many reserves remain there. The attraction has increased as coalbed methane production has grown, he said.
"I would expect to see a high level of interest continue there. But its success will depend on BLM's ability to execute the permitting process," said Fuller. "The efforts to try and move forward in that have met with mixed success. Internally, the administration has done a lot to try and improve its ability to process permits. Externally, that's being challenged by groups who don't want to see oil and gas drilling permits issued at all."
For a producer, Fuller said, "how aggressively you go into federal reserves will depend on how certain you believe the process will be in delivering the resource."