Industry slams plan to hike royalty rate for federal lands

The oil-and-gas industry is attacking Interior Secretary Ken Salazar’s comment that his department plans to raise royalty rates for oil and gas produced on federal lands by 50 percent.

The American Petroleum Institute, the main industry lobbying group, called such a proposal another affront to President Obama’s recent claim of support for more oil-and-gas production as part of an “all-of-the-above” energy strategy.

“Increasing royalty rates when the industry already contributes $86 million to the federal government every day will only create disincentives for the domestic production President Obama claims to support,” Erik Milito, API director of upstream and industry operations, said in an emailed statement.

The Obama administration has long indicated it was considering changing the royalty rate. As reported by the energy and environmental news service E&E, Salazar told a House panel this week that the Bureau of Land Management planned to increase the rate from the current 12.5 percent to 18.75 percent, the rate offshore drillers pay.

Administration officials have justified reconsidering the onshore rate in light of a Government Accountability Office finding that the current rate is far lower than what other governments receive.

“”Our intent is to make sure the American taxpayer is getting appropriate value for oil-and-gas development on our public lands,” Deputy Interior Secretary David Hayes told a recent Platts Energy Podium event. He has said it’s difficult to find the right balance between setting the rate high enough to get more value for the taxpayer and not discouraging development of federal lands.

Obama’s proposed fiscal 2013 budget would also institute some new fees, including a set of fees for inspections and application reviews and another for leases that companies don’t produce. API and other groups attacked that and other aspects of the budget, including a proposal to roll back $40 billion worth of oil-and-gas tax breaks over 10 years.

Kathleen Sgamma, vice president for government and public affairs with the Western Energy Alliance, a Denver-based industry group, has said the oil-and-gas sector wants the royalty rate for federal lands to stay unchanged because it “reflects the added cost government imposes on federal lands development” with bureaucratic processes and regulations.

Development costs would further climb if the Bureau of Land Management were to move forward with highly anticipated chemical disclosure and well-integrity requirements for hydraulic fracturing on those lands, industry representatives have said.