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Drilling on Federal Lands could get more expensive

The Department of the Interior (DOI) recently announced a notice of proposed rulemaking that would change the price structure used for royalties on federal lands. The Bureau of Land Management (BLM) is soliciting public comments for the next 45 days on the proposed rulemaking.

According to the proposal, the BLM is considering updating “regulations related to royalty rates, annual rental payments, minimum acceptable bids, boding requirements, and civil penalty assessments for federal onshore oil and gas leases.”

The proposed rule change would change would allow the BLM to adjust royalty rates in response to changes in the oil and gas market, rather than charging its current flat 12.5% rate for all leases. The DOI and Government Accountability Office (GAO) have both criticized the current royalty structure in the past, saying that a change in the royalty rates could increase revenue collection by about $1.25 billion over 10 years, according to High Country News.

A report compiled by the GAO in 2007 found that the United States Government receives one of the lowest government takes in the world. The report’s summary starts off by mentioning the record oil and gas revenues at the time, an observation that is no longer applicable as companies deal with oil prices falling approximately 50% in the last six months.

Dan Naatz, senior vice president of governmental relations and political affairs for the Independent Petroleum Association of America (IPAA), pointed out the inconsistency in a recent press release. “At a time when the price of oil has dropped about 50% over the past seven months and coupled with new federal regulations for onshore producers, the Obama Administration’s proposal to increase onshore royalty rates will ultimately result in fewer American jobs, less energy production, and hurt our nation’s energy security.”

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.