House panel approves array of higher royalties, higher fees, new fees for oil and gas

Sept. 10, 2021
The House Natural Resources Committee approved a broad array of increases for oil and gas exploration and production costs, plus such changes as elimination of noncompetitive leasing.

The House Natural Resources Committee approved a broad array of increases for oil and gas exploration and production costs, plus such changes as elimination of noncompetitive leasing.

The committee also approved measures that would mostly double or triple civil and criminal penalties for violations.

The committee voted 24-13 Sept. 9 to advance those provisions as part of the budget reconciliation legislation moving through the House. All votes in favor of the legislation came from Democrats, all opposition from Republicans.

Democrats in Congress have been hoping to pass a $3.5 trillion budget reconciliation bill that will need only a simple majority to clear either chamber of Congress. In the Senate, that is expected to mean the bill can pass if all 50 Democrats agree, all Republicans disagree, and Vice-President Kamala Harris casts a tie-breaking vote.

It remains uncertain what will happen. Sen. Joe Manchin (D-W.Va.) has gone on record as saying the bill looks too expensive and inflationary and should be delayed until its fiscal implications can be adequately analyzed. He has not said, however, what specifics could win his vote.

Pieces of a huge pie

The House leadership has divided up the $3.5 trillion bill for assignment of multibillion-dollar segments to the specialized authorization committees.

For the Natural Resources Committee, that meant markup of $25.6 billion in spending recommendations and revenue-raising proposals to protect the environment, promote renewable energy, and target upstream oil, gas, and mining operations for higher costs and greater restrictions.

The Energy and Commerce Committee has scheduled a markup starting Sept. 13 for its $486.5 billion segment—which is to include a methane fee targeting the oil and gas industry.

Meanwhile the Senate committees have their own segments to mark up. For both houses of Congress, the bill will set targets, with assumptions about spending and revenues that may prove wide of the mark if implemented.

Costly for oil and gas

The Natural Resources Committee approved a bill that would raise revenues from upstream oil and gas operations on federal lands at every stage, with several new fees and increases in existing fees, royalties, and penalties.

The committee recommendations would:

  • Raise the minimum royalty rate for oil and gas production to 20% from its current 12.5%.
  • Assess royalties on almost all methane extraction, including on gas used on-site and on gas vented, flared, or leaked, with exceptions only for 48 hours of acute emergency or for tribal operations on tribal land.
  • Eliminate royalty relief in the offshore, where the Interior secretary currently is allowed to suspend royalties based on sale prices for the produced hydrocarbons.
  • Eliminate incentives for natural gas production currently available under the Energy Policy Act of 2005.
  • Raise minimum bid requirements, rental rates, bonding requirements, and inspection fees.
  • Establish federal onshore and offshore severance fees for oil and gas production at a rate of $0.50/boe.
  • Establish new fees including a “conservation of resources” fee, a “speculative leasing” fee, an “expression of interest” fee (to cover administrative processing costs), an idled well fee, and for pipeline owners an offshore pipeline per-mile fee.
  • Eliminate noncompetitive leasing, currently allowed when no competition shows up to bid.
  • Eliminate the Arctic National Wildlife Refuge oil and gas program and cancel the existing leases.
  • Prohibit oil and gas leasing in the Atlantic, the Pacific, and the eastern Gulf of Mexico, areas where no lease sales have been allowed for decades though the legal possibility still exists.
  • Increase civil and criminal penalties for violations, in most cases doubling or tripling the penalties.

For, against higher costs

Oil and gas trade associations have warned repeatedly that higher costs and greater restrictions will drive more production to private lands and overseas, a result that could reduce federal revenues without reducing total oil and gas consumption or greenhouse gas emissions.

Democrats have cited analyses by the Congressional Budget Office and the US Government Accountability Office to argue that increased costs will not necessarily reduce federal revenues.

One of the latest warnings from industry came Sept. 7 in a letter to the Senate Environment and Public Works Committee from oil and gas associations and a broad range of other industry and commerce groups. The groups worried that the Senate committee would try to add a methane fee to the budget reconciliation bill.

The methane fee, targeting only oil and gas facilities, was originally proposed in Methane Emission Reduction Act of 2021, proposed in March by Sens. Sheldon Whitehouse (D-R.I.), Cory Booker (D-N.J.), and Brian Schatz (D-Hawaii).

When the House Energy and Commerce Committee sets to work on its piece of the budget reconciliation bill Sept. 13, it will consider a provision to levy a methane tax on oil and gas production, processing, transmission, storage, and import and export equipment.