Posted on 02/14/2006 9:48:51 AM PST by LouAvul
NEW YORK (Reuters) - The government may waive up to $7 billion in royalty payments from companies pumping oil and natural gas on federal territory in the next five years, the New York Times reported on Tuesday, citing administration officials and budget documents.
The royalty relief would amount to one of the biggest giveaways of oil and gas in U.S. history, even though the administration assumes oil prices will remain above $50 a barrel throughout that period, the Times report said.
The report cited estimates in the Interior Department's recent budget plan that would allow companies to pump about $65 billion in oil and natural gas without paying royalties.
Administration officials cited by the report said the benefit stems from regulations dating back to 1996, when energy prices were relatively low and lawmakers wanted to encourage exploration in higher cost areas such as the deep waters of the Gulf of Mexico.
Much of the oil and gas from such leases is just beginning to be pumped due to the time required to explore deep waters and build large offshore platforms.
"We need to remember the primary reason that incentives are given," said Johnnie M. Burton, director of the federal Minerals Management Service, according to the report. "It's not to make more money, necessarily. It's to make more oil, more gas, because production of fuel for our nation is essential to our economy and essential to our people."
"I'm sorry I don't buy it. This sounds more like a payback to a monopoly with lobbying power."
Bizarro.
I am a sometimes rancher. I also own a small oil and gas operating company (about 750 employees).
I typically pay or receive a 1/8 royalty to the mineral owner.
Sometimes, I get or give a sweeter deal if the land is marginal or unproven. For example, I have some land in Pecos/Reeves county that has never been that great.
Deep, deep, gas and expensive wells.
Well I gave some leases I would not otherwise have given because I got guarantees that the leasee would go explore for gas and drill certain depths and formations.
Same thing here, except the government is the landowner. The land in question is cruddy land, expensive to develop, build pipelines, etc.
It's really basic economics --- no one would take the usual deal, so the government sweetened the pot.
I can't believe the number of people who fall for the liberal talking points, even here.
"I typically pay or receive a 1/8 royalty to the mineral owner."
So you're saying the gov't shouldn't be "typical"?
No, I'm saying what I said in my post.
Regardless of profits, there is a finite amount of capital to invest. And the oil companies have lots of places left in the world to invest their capital and produce oil. Sakhalin Island has billions of dollars being invested in it because Russia did not try to get too greedy. All those record profits correspond to record tax payments where the oil is produced. Here in Alaska, we continually seem to try and choke the golden goose.
"The oil industry is flooded with cash right now. If this story is true the US government is subsidizing an industry that is recording record profits. Sorry, I don't get it."
Not really.
Let's say you have 1,000 to invest.
You can invest it in Deal A that gives you a return of 15%
Or you can invest in Deal B that gives you a return of 20% with the same risk as Deal A.
No brainer, huh?
This is true in oil --- there are better places to put oil company's money than marginal areas like this.
Hence, the deal was sweetened, for the twin purposes of: (1) getting some, versus no, money and (2) encouraging domestic supply for security reasons.
I'm speaking more from the perspective of the Alberta oil patch. I'm not that famiar with the American market.
The Calgary oil trusts are flush with cash and short on projects.
I interviewed the guy that put the Velvet Energy deal together. The trusts threw money at him and his stock went from 0.20 to $8.50 at which point a Texas producer took them out.
That is a serious oil play and Velvet was just a small exploration company.
I see just the opposite, for projects that is. There are more project started in Canadian Oil than people, equipment and bulk material can meet the demand. Our Calgary office is trying to hire people in nearly every discipline. There is not a shortage of projects.
So with equipment and people already maxed out, why do you think oil companies should try to add even more projects?
After a ten year commodity drought metals and energy are back on the front burner and exploration companies are making up for lost time.
The prevailing wisdom in the resource industry is the present bull cycle will last ten years.
I don't believe anyone can predict this industry out ten years. But I cannot see this run-up ending soon. Wages are really climbing in the engineering and design field. Katrina was a major impact to sucking up people and material. Some plants hit hard by that are still not back up.
Or Petroleum or Mechanical or Chemical or Electrical Engineering. The industry is short on all of them.
Let us build the Mackenzie and the Alaskan Gas Pipeline at the same time and watch the demand on steel.
With what the Government takes in taxes on oil, etc. I am saying that maybe it is time to help out the producers that have the oil leases. The oil industry as you know has been through some very rough times and couldn't afford to drill a lot of new wells not to mention pumping limits that were in place under Clinton. Maybe this would lead to more exploration and wells.
So you're saying the gov't shouldn't be "typical"?
"No, I'm saying what I said in my post."
Your post says you pay 1/8 or receive 1/8 and I asked if the gov't should do the same. Your post about the gov't implies that the gov't, taxpayer, shouldn't receive jack squat.
Is that correct? The gov't should be different from others, like yourself in the oil buss.?
More deficit-mongering...
Samartaleck, you're pretty good at cherry picking but not good at listening. Here's what he said:
I typically pay or receive a 1/8 royalty to the mineral owner.
Sometimes, I get or give a sweeter deal if the land is marginal or unproven. For example, I have some land in Pecos/Reeves county that has never been that great.
Deep, deep, gas and expensive wells.
Well I gave some leases I would not otherwise have given because I got guarantees that the leasee would go explore for gas and drill certain depths and formations.
Same thing here, except the government is the landowner. The land in question is cruddy land, expensive to develop, build pipelines, etc.
It's really basic economics --- no one would take the usual deal, so the government sweetened the pot.
I can't believe the number of people who fall for the liberal talking points, even here. <--- This would be you
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