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Interior to Act Next Year to Raise Onshore Royalty Rates

In rolling out the Interior Department's budget request of $12.2 billion for fiscal year (FY) 2011, Secretary Ken Salazar last Monday said the department would initiate a rulemaking next year to raise onshore royalty rates for oil and natural gas production on federal land.

"Currently the onshore rate is 12.5%, compared to an offshore rate of 18.75%. Adjusting the onshore rate will partially address the findings from a 2008 Government Accountability Office report, which suggests that taxpayers could be getting a better return from federal oil and gas resources," Interior said in a summary of its budget request. The administration estimates that raising onshore royalty rates would bring in an additional $1 billion over the next decade.

"This [onshore royalty rate hike] will reduce the revenue that we have to invest in new production," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America.

In addition, the Interior wants to expand a previously proposed $4-per-acre-per-year fee on Gulf of Mexico nonproducing oil and gas leases to include nonproducing onshore leases. "This fee would provide a financial incentive for oil and gas companies to either get leases into production or relinquish them so that tracts can be re-leased and developed by new parties," the department said. The Obama administration projects this would raise an estimated $8 million in FY 2011 and $760 million through 2020.

The budget also calls for Interior's Minerals Management Service (MMS), which oversees offshore energy development, to collect a total of $20 million in inspection fees from Outer Continental Shelf (OCS) oil and gas facilities in FY 2011, which would be double the amount projected to be collected in 2010.

And in 2011 the budget calls for Interior's Bureau of Land Management to begin charging producers a portion of the inspection costs for the onshore oil and gas program, allowing for a reduction of $10 million in the agency's total expenses of about $40 million for compliance inspections.

The department plans to make a big push for renewable energy resources in FY 2011, increasing the budget to $73.3 million from $59.1 million in the current FY. However the department's focus in FY 2011 still will be on conventional energy and compliance, with the budget pegged at $460.2 million, up $13.1 million from $447 million in the current FY, according to Interior.

The department's "high-priority performance goal" is to increase approved capacity for production of renewable resources (solar, wind and geothermal) on Interior-managed lands by at least 9,000 MW through 2011.

The MMS anticipates a "substantial increase" in leasing activity on OCS sites for commercial generation of renewable energy. The agency is seeking a net increase of $3.2 million for its renewable activities in FY 2011.

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