In what may be the first step toward raising royalties for onshore and offshore production, two Interior Department agencies will commission a study comparing the U.S. oil and natural gas royalty collection system with those of other countries to determine whether American taxpayers are receiving a "fair return" from energy development on public lands.

The study will be jointly funded by the Minerals Management Service (MMS), which oversees oil and gas development on the Outer Continental Shelf, and the Bureau of Land Management (BLM), which supervises production onshore. Bids will be solicited for a third party to conduct the study, which is expected to be completed nine months after the contract is awarded.

The royalty review study follows a 2008 Government Accountability Office (GAO) report, which recommended that Interior undertake a broad review of its federal oil and gas fiscal system to determine whether it is collecting an appropriate share of royalties from producers (see NGI, Sept. 15, 2008). Producers currently pay a 12.5% royalty rate for onshore production and up to 18.75% offshore.

The GAO report noted that the U.S. government's "take" of revenues from oil and natural gas production is one of the lowest in the world. It further pointed out that Interior has not comprehensively reevaluated the federal oil and gas fiscal system in more than 25 years.

"We need to consider international comparisons in selecting fiscal parameters for our leases," said MMS Director Liz Birnbaum.

"The administration is committed to ensuring that taxpayers receive a fair return from mineral production on their lands," said BLM Director Bob Abbey. "This study will provide some common sense grounds for comparison as we evaluate our royalty rates and our oil and gas policies in the context of global markets."

The comparison of U.S. royalty rates with those of other countries "may reveal the potential for greater revenues to the federal government," the joint MMS/BLM press statement said.

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