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Salazar: Taxes, Fee Hikes Won't 'Put Anybody Out of Business'

While oil and natural gas producers, particularly independents, would disagree, Interior Secretary Ken Salazar last Wednesday said that proposed onshore and offshore fees and taxes in the Obama administration's budget for fiscal year (FY) 2011 "are not going to put anybody out of business."

Testifying before the Senate Energy and Natural Resources Committee, Salazar said, "We are not, as some people would claim, taxing the oil and gas industry to death."

Sen. John Barrasso (R-WY) accused the Obama administration of trying to "drive the [natural gas] industry into the ground" with new fees and taxes. He reported that revenues from oil and gas drilling in Wyoming fell to $10 million last year from $93 million in 2008. Barrasso attributed the drop to restrictive Obama administration policies.

Salazar countered that the revenue drop was due to the fact that many leases -- up to 50% of leases that were handed out in recent years -- have ended up in litigation. In contrast, he noted that less than 1% of leases were involved in litigation 10 years ago.

The administration has proposed "draconian taxes" on the domestic oil and gas industry, which "seems quite contrarian" to its position of wanting to create more jobs and lessen the nation's dependence on foreign energy sources, said Sen. Mary Landrieu (D-LA). "There's going to be fierce opposition to taxing this industry because it is counter" to those goals, she noted.

The additional tax burden would cut into the development of the prolific shale plays, such as the Haynesville Shale, Landrieu said. Its gas reserves have been estimated estimated at 251 Tcf, or 11 times more what the country consumed last year.

In early February the White House proposed rolling back $36.5 billion in tax breaks for oil and gas producers (see NGI, Feb. 8). At the same time Interior proposed a number of new fees or fee increases on onshore and offshore production.

Like Barrasso, Sen. Robert Bennett (R-UT) reported that Utah's revenues from lease sales have fallen dramatically. At an auction in February, he said four parcels were offered to producers; only one was sold for a total of $6,300, of which half will go to the federal government. In comparison, Bennett said the average quarterly lease sale in Utah netted $8 million during the 2006-2007 period.

Salazar said he already was meeting with Utah county commissioners to try to improve the situation. "I think it's the economic times and low natural gas prices," rather than Obama administration policies, that have contributed to the low producer turnout at auctions, he said.

Bennett agreed that low gas prices were partly to blame, but he believes that the lengthier process for obtaining permits to drill on federal lands has been a contributing factor as well.

Salazar also said he expected to release a five-year leasing plan for the Outer Continental Shelf (OCS), which would cover existing and future lease sales, this month. "We are attempting to pull together a plan for the Outer Continental Shelf that will cover both the existing current plan (2007-2012) as well as looking into the future," he noted.

"It has been difficult to do in large part because of the failure...of the earlier plan," Salazar, said, adding that the new plan "hopefully will not suffer from the inadequacies of the past plan." In April 2009 the U.S. Court of Appeals for the District of Columbia said the existing Bush-era five-year OCS leasing plan was flawed due to Interior's failure to properly assess the environmental impact of certain OCS areas included in the leasing plan, particularly Alaska's OCS. It sent the plan back to Interior to refine it (see NGI, April 20, 2009).

Reports last week indicated that the new leasing plan to be released by Interior would run from 2012-2017. "We're aware of the news reports but have seen nothing official from the department," said the American Petroleum Institute, which represents major producers.

Salazar also assured Sen. Lisa Murkowski (R-AK) that Tom Strickland, assistant secretary for Fish and Wildlife and Parks, is looking into the U.S. Army Corp of Engineers' recent denial of a permit for ConocoPhillips to build a bridge over the Colville River to access what would have been the first oil and natural gas leases in the National Petroleum Reserve-Alaska (NPR-A) (see NGI, Feb. 15).

"We don't control the Corps of Engineers," he reminded Murkowski, but Strickland will try to "bring [about] a solution that works."

Moreover, Salazar said it was Interior's intention to "continue forward with oil and gas leasing [in] the NPR-A. We have no intention...of pulling back" from the rights that have already been granted.

In a related matter, Sen. Lindsey Graham (R-SC) -- one of three senators working to craft climate change legislation -- asked Murkowski what should be included in an Oil and Gas Title in the bill. Murkowski recommended a producer's wish list -- sharing of offshore royalties by states and the federal government; streamlined permitting for onshore and offshore production; and greater access in the eastern Gulf of Mexico, said spokesman Robert Dillon.

"We don't even know [for certain] whether there will be an Oil and Gas Title" in the climate change bill, he said. Other than offering the proposals, Dillon noted that Murkowski will have no role in the legislation. "This isn't her ship. She's not even a passenger."

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