2008 Interior budget takes $43 million bite from states' revenue shares

Jan. 4, 2008
US producing states will lose nearly $43 million of their shares of revenues from federal oil and gas production within their borders under a provision of the Interior Department's fiscal 2008 budget.

US producing states will lose nearly $43 million of their shares of revenues from federal oil and gas production within their borders under a provision of the Department of Interior's fiscal 2008 budget. President George W. Bush signed DOI's budget into law on Dec. 26 as part of the omnibus budget bill approved by Congress earlier that week.

Known as net receipts sharing, the provision attempts to charge states for part of the federal government's oil and gas royalties program's administrative costs. It effectively will reduce each state's share of federal oil and gas revenues to 48% from 50%.

Then-Rep. Sidney R. Yates (D-Ill.) first proposed the assessment in 1991 when he chaired the US House's Interior Appropriations Subcommittee. Congress included it in DOI's annual budget until 2000 when producing states, through the Interstate Oil and Gas Compact Commission and their governors and congressional delegations, convinced federal lawmakers to repeal it.

The Bush administration brought it back as part of its fiscal 2008 DOI budget request early in 2007 but it escaped producing states' attention until late in the year, according to Kevin Bliss, IOGCC's Washington representative. He said that federal lawmakers including Sens. Jeff Bingaman (D-N.M.), Pete V. Domenici (R-N.M.) and Ken Salazar (D-Colo.) and Rep. Tom Udall (D-N.M.) protested but to no avail.

"The IOGCC has long advocated for a 50-50 split on revenue and was in fact instrumental in achieving that goal several years ago. We believe that the federal government has not made a case for this action. Previous studies have shown that states can administer the revenue distribution at a much lower cost than the federal government," IOGCC Acting Executive Director Gerry Baker said on Dec. 21.

States see role

Producing states believe they are better equipped to assume at least part of the responsibility, Bliss told OGJ Washington Pulse on Dec. 28. He said that then-Vice President Al Gore's Reinventing Government program embraced that concept in the 1990s but DOI did not adopt the idea.

"We certainly regulate more efficiently" than the US Bureau of Land Management, Don J. Likwartz, supervisor of the Wyoming Oil & Gas Conservation Commission, said by telephone from his Casper office on Dec. 28. "We issue six permits for every one of theirs in Wyoming. We have six staff members compared to their 80, although they have to look at more aspects when issuing permits than we do."

Western states will be hit hardest now that net receipts sharing has been revived. Wyoming represents more than half, nearly $21.5 million, of the estimated $42.6 million producing states will have to pay based on the nearly $2.13 billion they received during fiscal 2006. Estimated costs for other producing states include $11.5 million for New Mexico, $3.5 million for Utah, $2.9 million for Colorado and $1 million for California.

"Revenue from oil and gas production on federal land is an important source of income for New Mexico. This new provision would hit the state hard," Mark E. Fesmire, chairman of the New Mexico Oil Conservation Commission, said on Dec. 21 before DOI's budget became law.

Producing states want to make certain that the provision is not part of the department's Fiscal 2009 budget. "We fought this battle back in 1999 and got it turned around once, and we'll try to do it again through the states' governors, congressional delegations and the IOGCC. We don't see why BLM needs to take approximately $43 million out to administer these royalties," Likwartz said.

Contact Nick Snow at [email protected]