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Utah Senator Decries Proposed Fee Hikes on Oil, Gas

The Obama administration's proposed fee hikes and new fees for onshore and offshore production on federal lands in the fiscal year (FY) 2011 budget will add to the jobless rate and drain revenues from the federal coffers, both of which would further aggravate the economic climate, said Sen. Robert Bennett (R-UT) last Tuesday.

"We have something here that we want to continue, and yet with all these increased fees and increased prices [on oil and natural gas], I think that there's going to be an impact both on the jobs and on the amount of money that the federal government will seize," Bennett told Interior Secretary Ken Salazar, who testified at a hearing of the Subcommittee on Interior, Environment and Related Agencies.

The Utah senator, who has been critical of the Obama administration policies with respect to oil and gas, particularly in his home state, cited a study concluding that the "onshore oil and gas program generates $46 for every dollar spent on the program...and $123 when you factor in income [paid by people working in the industry] and other taxes."

"It's pretty tough to come up with a federal program" that has this rate of return, Bennett said. Faced with the prospect of higher fees, "companies [are] saying, 'We're just not going to fool with...the federal government. We're going to take our rigs and go someplace else,'" he said.

Salazar believes existing and proposed production fees are "affordable by the oil and gas industry." He blames the economic downturn in the oil and gas industry primarily on the lower cost of natural gas, not existing production fees or Obama administration policies.

Salazar pointed out that the federal onshore production royalty of 12.5% has been unchanged since 1920, and is significantly below the royalty rates charged by the states. Texas, for example, requires producers to pay an onshore royalty rate in the area of 20%, he noted.

Bennett said he believes producers would be "happy" to pay 20% if the federal government would quickly permit their drilling projects and have them "on the ground within 19 days," as he says Texas does.

"If you make an application in Texas to drill on state land, the application is approved in about 19-20 days," Bennett said. In comparison, he said producers trying to get leases in Utah have waited as long as seven years.

In the Interior Department $12.2 billion budget for FY 2011, which was rolled out in early February, Salazar said the department would initiate a rulemaking next year to increase onshore royalty rates for oil and natural gas production on federal land (see NGI, Feb. 8).

Interior also proposed an expansion of the existing $4-per-acre-per-year fee on Gulf of Mexico nonproducing oil and gas leases to include nonproducing onshore leases. In addition, the budget calls for the Minerals Management Service, which oversees offshore energy development, to collect a total of $20 million in inspection fees from Outer Continental Shelf oil and gas facilities in FY 2011, which would be double the amount projected to be collected in FY 2010.

And in FY 2011 Interior's Bureau of Land Management will begin to charge for a portion of the inspection costs for the onshore oil and gas program, which would cut the agency's total expenses of $40 million for compliance inspections by about $10 million.

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