House bill proposes new changes for drilling on public lands


Posted: 05/26/09 08:10 PM [ET]

would raise the royalties companies pay to drill on federal lands from 12.5 to 18.75 percent and shorten lease terms from 10 to five years.

Oil and gas companies, which still give twice as much to Republicans as to Democrats, are already fighting a push to repeal $31 billion in tax breaks and a climate change bill that could reduce demand for their products. They are now facing a third threat: the House Democratic bill that could cost the industry billions of dollars more for drilling on public lands.

"We are confronting a very difficult political environment," says Dan Naatz, vice president for federal resources and political affairs for the Independent Petroleum Association of America.

Supporters of the Democratic bill say the changes proposed in the Federal Lands and Resources Energy Development Act of 2009 are long overdue -- royalty payments haven't been increased since the 1980s -- and reflect what the companies would get in the market from private landowners.

Rising federal deficits provide more reason for the government to reassess what it charges to drill on its lands, backers argue.

"The federal government sits on incredibly valuable resources and it is about time we start maximizing the return to taxpayers," said Tyson Slocum, who directs Public Citizen's energy program.

To fight back, the industry says raising its costs will mean less domestic oil and gas production, which means greater dependence on foreign sources.

"This will be a great disincentive for companies to go out and explore," said Andy Radford, senior policy adviser at the American Petroleum Institute.

"If you increase the royalty rates, you affect the economics of a project."

Naatz said the changes will affect his group's members in particular, independent oil and gas companies that on average employ fewer than 20 workers, not the large companies like ExxonMobil that recorded record profits on high oil prices in recent years.

Backers counter that the proposed changes will align onshore royalty rates with what companies are already paying to drill offshore.

But Naatz and Radford said the finds offshore are usually much larger, making the prospect of paying higher royalties less of an economic incentive to drill onshore.

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