Posted on 05/27/2009 10:24:26 AM PDT by NormsRevenge
Democratic staffers on the House Resources Committee have released a “discussion draft” that would raise the royalties companies pay to drill on federal lands from 12.5 to 18.75 percent and shorten lease terms from 10 to five years.
Oil and gas companies, which still give twice as much to Republicans as to Democrats, are already fighting a push to repeal $31 billion in tax breaks and a climate change bill that could reduce demand for their products. They are now facing a third threat: the House Democratic bill that could cost the industry billions of dollars more for drilling on public lands.
“We are confronting a very difficult political environment,” says Dan Naatz, vice president for federal resources and political affairs for the Independent Petroleum Association of America.
Supporters of the Democratic bill say the changes proposed in the Federal Lands and Resources Energy Development Act of 2009 are long overdue — royalty payments haven’t been increased since the 1980s — and reflect what the companies would get in the market from private landowners.
Rising federal deficits provide more reason for the government to reassess what it charges to drill on its lands, backers argue.
“The federal government sits on incredibly valuable resources and it is about time we start maximizing the return to taxpayers,” said Tyson Slocum, who directs Public Citizen’s energy program.
To fight back, the industry says raising its costs will mean less domestic oil and gas production, which means greater dependence on foreign sources.
“This will be a great disincentive for companies to go out and explore,” said Andy Radford, senior policy adviser at the American Petroleum Institute.
“If you increase the royalty rates, you affect the economics of a project.”
Naatz said the changes will affect his group’s members in particular, independent oil and gas companies that on average employ fewer than 20 workers, not the large companies like ExxonMobil that recorded record profits on high oil prices in recent years.
Backers counter that the proposed changes will align onshore royalty rates with what companies are already paying to drill offshore.
But Naatz and Radford said the finds offshore are usually much larger, making the prospect of paying higher royalties less of an economic incentive to drill onshore.
Kenneth Medlock, a fellow at the Baker Institute Energy Forum at Rice University, said higher royalties may end up leaving less in government coffers if companies decide the price is too high to drill on federal lands.
“This could push people away from federal lands, all else being equal,” Medlock said.
Last year, the government collected more than $3.6 billion in onshore royalty payments.
Slocum of Public Citizen said claims that higher royalties will lead to less production are a “radical interpretation.” Market prices are much more determinative of whether a company decides to drill or not, he said.
“These are not Hugo Chavez royalty rates. They are very modest when you compare them to what other countries charge,” Slocum said, referring to the Venezuelan president.
The Government Accountability Office has noted that the United States takes one of the smallest shares of oil and gas revenues of any oil-producing nation, a summary of the bill noted.
The shortened lease term, meanwhile, will likely reignite a fight waged last year between the industry and Democrats over so-called “use it or lose it” provisions.
Democrats tried to deflect anger over higher gasoline prices and defuse a push to open up the Outer Continental Shelf to oil drilling by charging the industry was not doing all that it could to drill on areas that it did have access to.
But Naatz said companies have no reason not to drill. “Companies don’t lease land to sit on,” Naatz said.
Last summer’s debate demonstrated that oil and gas companies can still win a political fight even if the industry’s natural allies no longer control Congress. Democratic leaders were unable to continue a moratorium on drilling in the Outer Continental Shelf.
Still, Capitol Hill used to be a much friendlier place for the industry. Republicans included oil and gas companies in a broad manufacturing tax credit that meant billions of dollars to the industry. Now that break is on the chopping block in President Obama’s budget.
The fight is about more than taxes. Oil and gas producers say they feel ignored by the administration, despite talk of a comprehensive energy strategy.
“There is discussion of wind, there has been a discussion of solar, there has been discussion of efficiency,” Naatz said. “The major piece of the puzzle that is not being addressed is oil and natural gas.”
A bull in a china shop. Every move they make, another shelf crashes to the floor.
Perfect for a government takeover.
It really makes you believe that the Rats are on the take from the Arabs and OPEC to keep the US energy dependent.
Not sure, it depends upon what side of their liberal mouth they are speaking from.
The government is not getting 'screwed', but is getting the same deal as everyone else.
There is no mention of the raft of hoops imposed by the feds to drill on BLM land, either.
The added expense of an increased royalty would likely shift operations off Federal Lands.
Smokers have such a nasty habit - they need to be taxed and bear the burden of government because of their nasty habit.
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