As part of its proposed $10.7 billion budget for fiscal year (FY) 2009, the Department of Interior (DOI) last Monday called on Congress to repeal provisions in the Energy Policy Act of 2005 that extend royalty relief for offshore oil and natural gas producers for five years.

"With the current pricing of oil and natural gas, we don't think it's necessary," said Gary Strasburg, a spokesman for the Minerals Management Service (MMS), which oversees oil and gas activities on the Outer Continental Shelf.

At the same time, Interior requested that Capitol Hill lawmakers pass legislation this year that would make permanent the requirement that producers pay a $4,000 processing fee when applying for an oil and gas drilling permit. The FY 2008 omnibus appropriations bill, signed by President Bush in December, gave Interior's Bureau of Land Management (BLM) the authority to collect the $4,000 fee for one year ending Sept. 30, 2008. If the fee is made permanent, the agency estimates that it would collect $34 million annually.

The MMS will make an additional 48 million acres available for exploration and development in Alaska's Chukchi Sea and Beaufort Sea, as well as the eastern Gulf of Mexico during FY 2009, Strasburg said. The budget sets aside $8.5 million for MMS to carry out offshore lease sales under the five-year plan during the period.

Development of the additional acreage could produce 10 billion barrels of oil and 45 Tcf of natural in the years ahead, said Deputy Interior Secretary Lynn Scarlett.

Interior further noted that it anticipates holding a lease sale in the Arctic National Wildlife Refuge (ANWR) in 2010. It estimates that as much as $7 billion could be raised in leasing fees from producers.

The Bush administration proposes to set aside 1.5 million acres of ANWR's coastal plain for oil and gas development. Republicans have been trying to push this controversial measure through Congress for years, but they have always been met with stiff opposition from Democrats.

The proposed $10.7 billion budget for Interior is $388.5 million less than the enacted level of $11.1 billion for FY 2008. The budget allocates $307.1 million for MMS in FY 2009, an increase of $10.3 million from FY 2008. It proposes $1.002 billion for BLM in FY 2009, $5.7 million less than the FY 2008 enacted level.

In a related development, three oversight groups last Wednesday criticized Interior's request for a "paltry increase of four additional audit staff" in the budget for FY 2009. Project On Government Oversight, Taxpayers for Common Sense and Friends of the Earth called on Congress to restore the level of Interior's audit and compliance staff responsible for recovering oil and natural gas royalties to the same level it was at in fiscal year (FY) 2000.

"We urge your committee, at the very least, to restore the number of audit and compliance staff to their FY 2000 level, and to consider further increases commensurate with the DOI's expanded leasing and drilling activities. Doing so will undoubtedly increase revenue recoveries by tens and even hundreds of millions of dollars annually at a time of fiscal constraint," the groups wrote in a letter to the House Appropriations' Subcommittee on Interior, Environment and Related Agencies.

They cited a December 2006 report by the Interior inspector general that said MMS has made "deep cuts" in the number of oil and gas auditors since 2000, with the total number of auditors dropping to 242 from 287.

"A variety of increasingly troubled reports have pointed to the need for more accountability. For instance, auditors have come forward to blow the whistle, complaining that their efforts to collect from oil companies have been ignored by DOI higher ups. In addition, criminal investigations are under way into conflicts of interest with the oil companies," the groups said.

"MMS auditors function in the same ways that IRS [Internal Revenue Service] employees do; they ensure that oil companies pay what they owe. With fewer watchdogs minding the store, oil and gas companies have fewer incentives to pay up."

Interior's proposed FY 2009 budget "demonstrates a continued pattern of doing the least amount possible to address what are now widely confirmed shortcomings in the government's efforts to hold oil companies accountable for royalty payments." They noted the agency requested only four additional audit staff in FY 2008.

While "we applaud the DOI's announced increase of deepwater royalty rates to 18.75%...this announced rate increase is an empty promise without effective auditing and enforcement functions to ensure that oil companies pay these royalties," the groups said.

©Copyright 2008 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.