Feds: Fracking rules in April; no decision on onshore royalties

The Interior Department has not made any final decision on raising the royalty rate for oil-and-gas production on federal lands, the director of the department’s Bureau of Land Management said Tuesday.

BLM Director Bob Abbey contradicted recent comments by Interior Secretary Ken Salazar that the department planned to propose boosting the current onshore rate 50 percent, from 12.5 percent to 18.75 percent, equivalent to the offshore rate.

“We have completed analyses and are continuing to assess options before us,” Abbey told the House Natural Resources Committee’s Energy and Mineral Resources Subcommittee. “But let me assure you, there has been no final decision to increase onshore royalty rates.”

Salazar had told Congress last month that his department planned to raise the onshore royalty rate 50 percent in seeking to ensure taxpayers get a fair return on the development of oil and gas leases on public lands.

“Our view is that the royalty rate that has been proposed, which is at 18.75 percent for the onshore, is an appropriate fair market value rate,” Salazar said.

The onshore royalty rate hasn’t been raised since the 1920s and government reports have suggested the current rate brings in less money than states receive, Interior officials have said.

Industry groups such as the Denver-based Western Energy Alliance and some Republicans oppose raising the royalty rate because they contend the current rate reflects additional costs for drillers stemming from federal regulations and application reviews.

“It seems to me to be a cost factor that will be passed on to ultimate consumers like people buying gasoline at pump, or if they can’t pass it on they’ll be less competitive and do less of it as a result,” said Rep. Doug Lamborn, R-Colo., subcommittee chairman. “It sounds negative to me.”

Abbey also told the committee that his agency hoped to unveil its highly anticipated rules for hydraulic fracturing on federal lands in April.

The rules would impose a fracturing chemical disclosure requirement with an exemption for trade secrets, set standards for well-bore integrity and require companies to explain how they plan to dispose of their flowback water.

The rules have come under fire from industry and Republicans, who argue states already do and should continue regulating hydraulic fracturing, the process of injecting mixtures of water, sand and chemicals underground to break up dense rock that holds oil and gas.

Lamborn said he was “extremely troubled” by the rules, especially the disclosure requirement, which he argued states already handle sufficiently. He cited FracFocus.org, a registry site where some states including Texas now require drillers to disclose their chemicals.

“To me this is a new layer of bureaucracy and burdensome paperwork and other possible regulatory hurdles that are going to cripple energy production in this country,” Lamborn said of the BLM rules.

Abbey revealed Tuesday the rules would identify FracFocus as the “likely system we would be using for disclosure of chemicals.”

“We don’t see it as being duplicative,” Abbey said of the disclosure requirement, noting that only some states have such a rule right now.

The rules’ well-bore integrity standards will incorporate the industry’s own best practices for cementing, Abbey said.

Hydraulic fracturing has been done and can be done safely in most cases, Salazar has said. But he has defended the “common-sense” rules as helping instill confidence among a public that has concerns about the possible environmental and health impacts of fracturing.

Industry has insisted the process is safe, but environmentalists are concerned it can contaminate groundwater. President Barack Obama has said he supports the ongoing natural-gas boom but wants to ensure it’s done safely.

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About The Author

Puneet Kollipara covers politics and the energy business from the Washington, D.C., bureau of the Houston Chronicle and Hearst. He holds a bachelor's degree in economics and physics from Washington University in St. Louis. Follow him on Twitter: @pkollipara