The US Bureau of Land Management announced on Jan. 2 that it will start to collect a $4,000 processing fee for each new oil and gas drilling permit application. Rocky Mountain producers warn that it could establish a dangerous precedent affecting federal leasing nationwide.
The fee became part of the Department of Interior's fiscal 2008 budget during congressional negotiations on the omnibus spending bill in December. "The House was insisting on it. The Senate was against it. What made the difference was that the White House came out in favor of it," said Bob Gallagher, director of the New Mexico Oil and Gas Association in Santa Fe.
In an exchange of e-mails, he asked BLM's public affairs office how language in the 2005 Energy Policy Act prohibiting BLM from recovering such costs affects the fee. Spokesman Tom Gorey responded that the omnibus spending bill specifies it is a processing, and not a cost-recovery, fee.
"The money generated by these fees is not new revenue, but rather a reimbursement to the US Treasury for the estimated cost of processing new APDs [Applications for Permits to Drill] for the duration of Fiscal Year 2008," BLM said in a Jan. 2 press release.
Bigger question
"They used the word 'reimbursement' in their press release, but it looks a lot like recovery. We don't believe their language legally gets them over the provision. The bigger question is where it will stop. If you have cost recovery for APDs, do you also allow it for rights-of-way or other procedures?" Gallagher told me soon after.
Tim Spisak, who heads BLM's fluid minerals division, said that Congress reduced the agency's oil and gas operations budget by $25.5 million and created a new APD appropriation for that amount. "It put in a mechanism to collect a processing fee and tied it to a reimbursement for the appropriation. BLM gets the same funding level; it's just broken up into two different funds," he explained.
But Marc W. Smith, executive director of the Independent Petroleum Association of Mountain States in Denver, said that the fee simply increases the cost of processing a document without improving the level of service.
"A new tax"
"It's a new tax on domestic energy production. More important, it doesn't address any of the ongoing needs of the BLM offices that are trying to keep up processing drilling applications and managing other public lands needs," he maintained.
"Right now, there's no promise it actually will go to BLM. The money is earmarked for the general treasury," Gallagher added. He conceded that the additional cost by itself should not affect overall activity. "If $4,000 is going to queer the deal, you shouldn't drill the well," he said.
But he and Smith agreed that such a fee never was part of the original contracts to develop federal energy resources. "Essentially, Congress is changing the rules of the game mid-course. It's a little like a landlord, when you rent an apartment, telling you there's a processing fee every time you submit your rental payment or pick up your mail," Smith told me.
Regional oil and gas associations in the Rockies are leading the industry response to the new fee for now, according to Gallagher. But he also has spoken to the American Petroleum Institute, Independent Petroleum Association of America and other national groups about it, and they are watching the matter closely, he said.
Contact Nick Snow at [email protected].
