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Analysis Says Gulf Slowdown Costing Government $4.7M a Day

The federal government is losing more than $4.7 million a day due to declining production at existing oil and natural gas wells in the Gulf of Mexico (GOM) and "bureaucratic delays" on issuing permits for wells in the Gulf offshore, according to a recent report by the National Center for Policy Analysis (NCPA).

With oil currently trading at more than $100 barrel, this would amount to at least $1.7 billion in lost revenue for the federal government this year, said Rob B. Bluey, who wrote the analysis for Dallas-based NCPA. The estimate does not even take into account the revenue being lost from GOM natural gas production, which is trading at a significantly lower price ($4.32/Mcf Henry Hub).

"The federal government could recoup the lost revenue almost immediately if it began issuing new permits for the Gulf of Mexico," he said. Bluey called on the Obama administration to continue to issue new permits for the GOM and explore other untapped domestic resources.

But a year after the explosion and sinking of the BP plc-leased Deepwater Horizon rig, "the federal government is still slowing new offshore oil and gas production," the analysis said. Interior Secretary Ken Salazar canceled a GOM lease sale last October and has postponed until 2012 an auction of leases in the central GOM that was to be held last month.

Another lease sale that was initially planned for October in the western GOM could also be delayed until 2012. "That would make 2011 the first year since 1965 that the federal government did not sell leases in the Gulf," Bluey said.

"The lack of new leases ultimately means the government will collect lease rent. Offshore leases currently generate more than $200 million in rent payments per year," he said.

In 2008 -- two years before the drilling moratorium was imposed on deepwater drilling in the GOM -- the offshore industry paid $237 million in rent to the federal government, $8.3 billion in royalties and $9.4 billion for bids on new leases.

All of these figures -- with the exception of rents -- fell dramatically last year. Royalties were cut by more than half to $4 billion and lease bids were only $979 million, while rent rose slightly to $245 million, according to the analysis.

The economic forecasting firm IHS Global Insight recently estimated the tax receipts for the federal government, states and localities as a result of offshore oil and gas operations in the GOM. Tax receipts related to offshore oil and gas operations totaled $13 billion in 2009, and ares expected to climb to $18.62 billion in 2015 and to $19.91 billion in 2020.

The analysis further said that "significant additional revenues would be generated if the federal government opened areas currently closed to exploration and production -- such as the eastern Gulf of Mexico, portions of the Rocky Mountains, the Arctic National Wildlife Refuge and the Atlantic and Pacific coasts. A recent study by Wood Mackenzie for the American Petroleum Institute estimates that increased access to those areas would bring $150 billion into federal coffers by 2025."

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