The Interior Department and Energy Department (DOE) budget for fiscal year (FY) 2013 have little in them for oil and natural gas producers to cheer about. President Obama calls for the repeal of oil and gas tax breaks, a new onshore inspection fee, a hike in the existing offshore inspection fee and the repeal of royalty incentives for “deep gas” production on the Outer Continental Shelf (OCS).

In the DOE budget, Obama has proposed rolling back an estimated $40 billion in tax breaks for producers, something that he has done nearly every year since taking office. But he has been met with opposition in Congress at every turn (see Daily GPI, Sept. 13, 2011, May 18, 2011). It’s not likely that this year will be any different, particularly with Republicans in control in the House.

Interior Secretary Ken Salazar believes tax incentives for most of the industry have outlived their usefulness. “I think at a time oil and gas companies are selling oil in the neighborhood of $90-100 bbl and are having the largest profits that oil and gas companies have ever made in the history of the world, that there is no need for them to continue to have subsidies from the American government.”

Interior’s overall budget request for FY 2013 is $11.5 billion, up $97.9 million from the enacted level for the current year. The budget would cover the period from Oct. 1 through the end of September 2013.

As part of the Interior budget, the administration is seeking to impose a $4/acre fee on nonproducing federal leases on lands and waters to provide an incentive for producers to either get their leases into production or relinquish them so that the tracts can be leased to and developed by other parties. This so-called “use-it-or-lose-it” fee is projected to generate revenues of $13 million in 2013 and $783 million over the next 10 years, according to Interior.

The Obama administration also proposes to repeal parts of the Energy Policy Act (EPAct), which bars Interior’s Bureau of Land Management (BLM) from establishing cost-recovery fees for processing applications for oil and gas permits to drill. Interior estimates that eliminating the EPAct barrier could result in savings of $18 million in 2014 and $36 million over two years.

Interior proposes to shift the costs of inspections onto the industry. It favors an inspection fee for onshore oil and gas drilling, which could result in $48 million in fiscal year 2013, the department estimates. And it seeks to hike the existing inspection fee for offshore inspections to recoup a total of $65 million in 2013 from $62 million in the current fiscal year.

The administration further proposes to continue with a $6,500 fee for processing a drilling permit, which is expected to generate approximately $32.5 million in offsetting collections in 2013. It also calls for a repeal of the royalty incentives for certain deep gas production on the OCS.

With respect to individual agencies within Interior, the administration has proposed $1.1 billion in FY 2013 for BLM, which is essentially flat compared with the 2012 enacted budget; $164 million for the Bureau of Ocean Energy Management, an increase of $3.3 million from the enacted level for 2012; and $222 million for the Bureau of Safety and Environmental Enforcement, which is nearly $25 million more than the enacted level for 2012.

The proposed $1.1 billion budget for Interior’s U.S. Geological Survey (USGS) includes an increase of $13 million to support an interagency hydraulic fracturing (fracking) research and development effort with the Environmental Protection Agency (EPA) and the Department of Energy (DOE). “I think the best thing that we can do is stand up the natural gas industry and support it as the president has directed us to do by making sure the people in the United States have confidence that hydraulic fracking is not creating environmental problems,” Salazar said.

The three agencies will come together in a “cohesive effort” to support the president’s plan for natural gas, he noted.

EPA’s proposed budget provides $81 million for Science to Achieve Results (STAR) grants to conduct research in key areas such as fracking, potential endocrine disruptors, and green infrastructure. Of that total, about $14 million will be directed to fracking investigations.

“Building upon ongoing research and collaborating with the Department of Energy and the USGS, a total $14 million investment will begin to assess potential impacts of hydraulic fracturing on air quality, water quality, and ecosystems,” the EPA budget proposal said. “The EPA also will release an Interim Report on the Impacts of Hydraulic Fracturing on Drinking Water Resources in 2012.”

EPA’s overall budget was cut for the third year in a row. The president proposes $8.344 billion in spending for EPA in FY 2012, which is $105 million below the agency’s enacted level for FY 2012.

DOE’s budget includes $12 million for a multiyear research effort to reduce risks associated with fracking in shale formations. “The money would fund a research program to improve safety of natural gas development including hydraulic fracturing…to allow drillers access to vast new supplies of natural gas,” the DOE budget proposal said. The research is in response to “critics [who] say it has led to pollution of air and water.”

In addition, the administration proposes to increase the budget for the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration by $75 million to $276 million to ensure greater pipeline safety.

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