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Salazar Says Producer Tax Breaks Simply 'Are Not Needed'

The Obama administration has proposed stripping away tax breaks from oil and natural producers for "a very simple reason and that is they are not needed," Interior Secretary Ken Salazar said Monday.

"Even the prior administration under President Bush said that they didn't need any more [tax] breaks. I think it's simply a sense of fairness," he said in a teleconference with reporters from Colorado.

Salazar said he plans to meet Thursday with the board of directors of the American Petroleum Institute (API), including the CEOs of the nation's top oil and gas companies. "My message to the oil [and gas] companies will be simple: they are and will remain an important part of our energy future," and "we need to work together to address [future] energy challenges."

API, which represents major producers, and its members "have a huge stake in the energy development for our country," he said. This "direct dialogue" will give producers an "opportunity to tell me what their concerns are."

In addition to the the administration's proposed tax hikes, a key issue likely to be brought up by producers is the Department of Interior's efforts to reform royalty rates (see Daily GPI, March 9). "With respect to the...concerns and complaints that I've heard from the oil and gas industry that the increases in royalties may end up diminishing their capacity and somehow is unfair, my response to that is we have a responsibility to the American taxpayer" to collect a "fair return" on production on public lands, he said.

"We will look forward to arrive at what will be a fair return to the American citizen from the lease sales, as well as rentals."

Asked whether producers were being singled out in the administration's proposal to repeal of the Section 29 manufacturing tax credit, he said. "Things are not being handled in Washington the same way that they've been handled in the past. Not everyone is going to be happy."

Salazar dismissed the possibility that higher taxes and royalty rates could result in less production and thus limited supply, which could send oil and gas prices higher. "With respect to the ups and downs in terms of gas prices, that really is a reflection of the failure of the United States of America for now nearly 40 years to seize the opportunity to create our own energy independence here at home. So we are subject to the spikes that go up and down with the global economy and action that OPEC takes."

As a show of the agency's commitment to oil and gas, Salazar announced that Interior will hold more than 40 major lease sales for development on public lands this year. Seven onshore oil and gas lease sales have taken place in the past seven weeks, offering 830 leases that covered almost 1.2 million acres in the West. He noted that 326 of the leases, or 250,000 acres, were sold for more than $32 million. The Bureau of Land Management is scheduled to hold an additional 32 oil and gas auctions for onshore public lands throughout the year.

Salazar said he plans to participate in a Minerals Management Service lease sale Wednesday in the Central Gulf of Mexico (GOM), including the "181 South" area, that would produce up to 1.3 billion bbl of oil and 5.4 Tcf of natural gas -- equal to a four-year supply of gas. Lease Sale 208 will offer 6,458 blocks on the Outer Continental Shelf, covering 35 million acres in the Central GOM area. This will be the first of two GOM lease sales scheduled this year, according to Interior.

He said he did not support directional drilling of the Arctic National Wildlife Refuge (ANWR) in Alaska. "The question of whether or not you could do directional drilling without impairing the ecological [balance] is...open" to debate, Salazar said. "Most of what I have seen up to this point is that it would not be possible to do that." He called ANWR one of those "special places and treasured places that we will not disturb."

Salazar said he has had recent meetings with Federal Energy Regulatory Commission (FERC) Acting Chairman Jon Wellinghoff to "come up with a MOU [memorandum of understanding] that is long overdue" with respect to the agencies' jurisdiction over renewable energy projects. He said he expects the MOU to be finalized later this week.

"There is no jurisdictional dispute whatsoever with respect to the issues of wind energy and its development off of the Atlantic coast," he noted. "We will not let any of the jurisdictional FERC battles of the past get in the way of our moving forward with a renewable energy agenda." But Salazar acknowledged that failure to resolve the jurisdictional issues could impede the development of renewable energy in the country.

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