Feds consider carrots and sticks to speed up drilling

The Obama administration is considering a carrot-and-stick approach to prod energy companies to move more quickly in producing oil and gas from federal drilling leases.

President Barack Obama already proposed the punishment side of the equation, by asking Congress to impose a $4-per-acre “use it or lose it” fee on onshore and offshore leases as part of his federal budget plan. That proposal has been echoed in newly introduced legislation in the House and Senate.

Today the nation’s top offshore drilling regulator hinted at incentives that also could be used to spur companies to move quicker.

Options include shortening the term of offshore leases — which is customarily 10 years — and lowering the royalty rates that companies pay for production that happens early on.

“With a shorter period of time, there is obviously incentive for them to do it faster,” said Michael Bromwich, the director of the Bureau of Ocean Energy Management, Regulation and Enforcement. “Another possibility we have talked about and explored is changing the royalty rate and charting a lower rate if the property is developed very quickly.”

Under that scenario, Bromwich said, companies would still pay an annual rental rate while a leased area is not developed — as they do now. But to encourage quicker producers not to let the leases sit idle, “you could reduce the royalty rate in the first couple years of development.”

Other options also could be on the table, as the Interior Department conducts a broad review at the request of the White House of how many federal oil and gas leases are undeveloped.

President Barack Obama announced the Interior Department probe at a March 11 news conference on oil prices; he set a March 25 deadline for the study.

“The industry holds leases on tens of millions of acres . . . where they aren’t producing a thing,” Obama said.

Although 41 million acres of public lands now are leased for oil and gas development, just 12 million acres are producing. Offshore, 38 million acres of the outer continental shelf are leases for oil and gas drilling, but just 6.5 million acres are producing.

Oil industry leaders who oppose the proposed $4-per-acre fee say they already have plenty of incentives to diligently develop the acreage they are renting from the federal government, including existing rental rates they pay on undeveloped leases and the time limit imposed by their leases.