IPAA urges tax relief for 50 b/d wells

The Independent Petroleum Association of America has urged the U.S. Department of Interior to consider royalty reductions or other relief for all wells producing 50 b/d or less.

"With oil prices now at record lows, wells producing 50 b/d are uneconomic. Royalties need to be reduced for these wells, otherwise they will be shut in or abandoned, further reducing domestic production," IPAA said.

"Better still would be a 2-year royalty reinvestment policy for these uneconomic wells. If every royalty dollar for an uneconomic well is reinvested into keeping the well on line, the greater the return is to the American public. Both the royalty investment account or reduced royalty approach would terminate when oil prices recover to economic levels."

Plugging, royalty issues

IPAA suggested Interior change several other rules and policies to help maintain oil production from federal lands during the oil price depression. The agency recently decided to allow stripper well operators on federal lands to suspend operations without losing their leases (OGJ, Feb. 15, 1999, p. 35).

It said Interior's recent action suspending the plugging rule "was a step in the right direction, but it doesn't go far enough. The Interior Department must also initiate a series of cost-cutting measures for producers drilling on federal lands."

IPAA said the Minerals Management Service's pending oil royalty valuation rule would raise royalty payments "by implementing policies not consistent with the lease contract."

It said it would not oppose changes in the present system, if the resulting rule were equitable, and it urged Interior to resume negotiations with industry.

'Housekeeping' proposals

IPAA's other suggestions focused on "housekeeping" proposals involving permitting, fees, and paperwork (OGJ, Feb. 15, 1999, Newsletter).

IPAA said Interior could suspend mandatory onsite maintenance tasks that do not pose a threat to public health, safety, and the environment but that are costly for producers to carry out.

It said Interior should delay the rewriting of rules in "plain English," if the changes create additional regulatory burdens for producers.

IPAA also proposed Interior reduce to $1/acre all lease rental charges higher than that. If a lease bonus is $2/acre or more, Interior should waive the first year's rental, the association said.

It said Interior should eliminate rights-of-way and rental charges for pipelines, roads, and other surface facilities.

IPAA also urged Interior to expedite the processing of permits and applications to operate on public lands: "Independents can't afford to have investment capital sitting idle while they wait for overdue approvals."

It said Interior should follow an advisory committee's proposal that it streamline National Environmental Policy Act permitting and allow producers credits for environmental documentation costs.

And it suggested that Interior transfer Bureau of Land Management oil and gas regulatory powers to state agencies so producers can eliminate the costs of meeting duplicative federal and state regulations.