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Independent Producers Blast BLM's Proposed Drilling Fees

Independent producers lambasted the Bureau of Land Management's (BLM) plan to raise drilling fees and impose new permitting charges, saying it would increase consumer gas costs. BLM announced the plan two weeks ago, stating that it would recover about $23.5 million more annually in mineral processing receipts than the agency receives under existing regulations (see NGI, July 25).

The proposal would cover oil and gas applications for permits to drill (APD), geothermal permits to drill (GDP), and geophysical exploration permits. The new fees pursuant to these changes would be phased in over five years.

Officials from the Independent Petroleum Association of Mountains States (IPAMS), a trade association representing more than 400 independent producers and other organizations in the Intermountain West, said the cost recovery proposal will damage local economics and will result in higher natural gas prices for consumers. According to IPAMS, BLM's oil and gas program already recovers more than 1,600% of the government's current costs to administer it.

"Congress has rejected similar efforts in the past. Yet, efforts by the Office of Management and Budget at the Department of the Interior continue down this path, demonstrating their unwillingness to help reduce natural gas prices, which have tripled in the last four years," IPAMS Executive Director Marc Smith said in a statement last week. "In essence, the government is increasing consumers' costs for natural gas by making it more expensive for producers to conduct business on federal land."

He said the federal government "could meaningfully help reduce the public's energy costs" by lowering its fees rather than raising them because the government controls about one-third of America's natural gas market through its federal land holdings from which natural gas extraction occurs.

"While consumers are clamoring for relief from high energy prices, the federal government is receiving $8 billion in revenues (from rents, royalties and bonuses) generated from natural gas reserves on federal lands," IPAMS said. "The government should be looking at ways to provide relief to consumers."

Under the new BLM plan, first-year fees would be $1,600 for APDs and GPDs and $500 for geophysical exploration permits. Second-year and following year rates would increase by $500 until the full fee is met. In the case of APDs, the full fee would be $4,000; for GPDs, the full fee would be $3,500; and for geophysical exploration permits, the fee would rise to $2,500. Currently, there are no fees for geophysical permits. A 30-day period for public comment on the proposal will close Aug. 18.

IPAMS said rather than raising fees and imposing new ones, the BLM should instead be focusing on the inefficiencies and inconsistencies within its own operations. Various BLM field offices are forcing some natural gas producers to wait more than a year for a permit on federal lands, which is months longer than producers typically wait for similar permits on state or privately held lands, IPAMS said.

"The bulk of domestic natural gas is discovered by independent producers (typically small companies). This proposal is like a neon sign to small companies reading 'not welcome,'" Smith said. "With record commodity prices, the government will get more money but the producer and the consumer have to bear the costs. This approach does not make sense when the natural resources managed by the federal government belong to the public and are for the benefit of the public."

The association said the proposed cost recovery rule does not account for the nature of the exploration business. "Exploration projects would need to be conducted on a 'just-in-time' permitting basis. That simply does not work in this industry when federal agencies are involved in the process," said Smith. The uncertainty and additional risk created would change the opportunities for exploratory projects on federal lands.

IPAMS said if the new fees result in 100 fewer wells being drilled in the Intermountain West, that would equate to more than $100 million being taken away from local economies.

However, with sharply higher commodity prices gas producers have had significant additional cash to spend on drilling. A recent report by the Government Accountability Office (GAO) found that the dramatic increase in oil and natural gas development on federal lands over the past six years has stretched the staff of the BLM to a point that it has been unable to meet its environmental protection responsibilities.

To remedy the situation, the GAO recommended that Interior Secretary Gale Norton take steps to ensure that BLM's staffing needs are brought to the attention of key decision-makers. In addition, it suggested that the secretary direct BLM to finalize and implement a fee structure to recover the costs of processing oil and gas drilling permits from producers.

Nationwide, the total number of oil and gas drilling permits approved by BLM has more than tripled, from 1,803 to 6,399 for fiscal years 1999 through 2004, said the GAO, the investigative arm of Congress. Much of the increased oil and gas activity has been concentrated in five intermountain states -- Colorado, Montana, New Mexico, Utah and Wyoming.

In fiscal year 2004 alone, the offices under the jurisdiction of these five BLM state offices collectively approved 6,204 drilling permits, or more than 95% of the nationwide total, the GAO said.

The increase in permitting requests has left little time for BLM's other responsibility -- mitigating the environmental impacts of oil and gas production, according to the 70-page report. "For example, the Buffalo, WY, and Vernal, UT, field offices -- the two field offices with the largest increase in permitting activity -- were each able to meet their annual environmental inspection goals only once in the past six years."

Over the past six years, the BLM has made several policy changes that have affected to varying degrees the agency's ability to assess and mitigate the environmental impacts of oil and gas activities on public lands, GAO said. The dual policies sought to streamline the permitting process, review restrictions on oil and gas development, and enhance BLM's oil and gas inspection capabilities.

"However, the combined effects of both types of policy changes on BLM's ability to assess and mitigate environmental impacts have been mixed. For example, staff from four of the eight field offices told us that policies that streamlined the permitting process also increased the emphasis on processing permits, which in turn resulted in shifting staff away from their environmental mitigation responsibilities," the report said.

The BLM's workload "has been further exacerbated by increases in public challenges to BLM's decisions and actions, according to BLM staff. Heavy workloads have led to high stress levels and low morale among some staff," the GAO said.

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