The head of the Bureau of Land Management (BLM) told a Senate subcommittee Wednesday that the agency has not made a final decision on whether to hike the onshore royalty rate to 18.75% from its existing 12.50%.

Although the BLM’s budget for fiscal year 2013 is based on the assumption of raising the royalty rate to 18.75%, “let me just reassure the members of this committee that that decision has not been reached. We’re continuing to look at the full range of statistics that we have been able to compile,” said BLM Director Bob Abbey during a hearing of the Senate Appropriations Committee’s Subcommittee on Interior and Environment.

As part of the decision-making process, “we have analyzed what many of the states are charging relative to royalties,” as well as the royalty rates of other countries,” he said. The Government Accountability Office, in a report issued in June 2007, found that U.S. royalties on oil and natural gas production were among the lowest in the world (see Daily GPI, June 5, 2007).

“I am glad to hear you make [the] statement that a conclusion has not been reached,” said Sen. Lisa Murkowski of Alaska, the ranking Republican on the subcommittee. She questioned the wisdom of proposals that would hike the federal royalty rate, as well as impose new inspection and permitting fees, saying they would drive producers from public lands to state and private lands.

Abbey said he didn’t know when the agency would make a determination on the onshore royalty rate. “There are a lot of factors that we [have to take] into consideration relative to what we will ultimately propose for any royalty rate increase.”

While this by no means is an assurance that a royalty rate increase is off the table, it’s good news for producers.

Abbey did not indicate when the BLM’s proposed rule on hydraulic fracturing (fracking) on public lands would be issued, but he did say that the rule would likely overlap with state regulation in only one area — disclosure of chemical fluids. The BLM rule would have two other components, addressing well bore integrity and water management, he noted.

He was asked to respond to a U.S. Geological Survey (USGS) report that estimated that some aquifers in the Bakken Shale play were losing about 1-2 feet per year due to increased energy production. Abbey referred the question to the USGS, but said “I will…give acknowledgment to the industry for they understand the potential impact and certainly the long-term impacts of continuing the operations that are currently taking place with the amount of water. And they are doing, or at least proposing to do, a better job of reusing water and actually treating water on-site.”

The $48 million to be recovered from an inspection fee proposed in the FY 2013 budget will go towards conducting closer inspections of fracking operations, according to Abbey. “Fracking is not new by any means. About 90% of the wells that are being drilled today on public lands are using the fracturing technology.”

In the offshore James Watson, director of the Bureau of Safety and Environmental Enforcement (BSEE), said he was not going to sacrifice safety and the environment to speed up the processing of permits.

“A lot of attention has been paid to our permitting pace, and I sympathize with those persons who depend on these permits for their jobs…We have issued hundreds of deepwater and shallow water permits over this past year. However those who believe that the pace of permitting should be automatically the same as before Deepwater Horizon are ignoring the lessons of that disaster,” Watson said.

“I’m not about the number of days it takes. I’m still about safety and environmental protection.” Still he noted that the average time to process a permit fell from 97 days between last March and September 2011 to about 62 days currently. This, he believes, is due to two factors. “I think there’s been a combination of efforts by industry to provide more comprehensive, better prepared applications than a year ago. And on the BSEE side, I think we’re better at doing these new safety standards.”

While industry has criticized BLM’s sluggish permitting pace, “I haven’t heard any disparaging remarks about our competencies,” said Watson.

Because of the fees on industry, Watson said BSEE has been able to increase its number of inspectors to 91 from 61 this year, and to add about 10% more engineers needed to process permits. His target is 150 inspectors and 230 engineers.

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