Obama says oil firms – not taxpayers – should pay for inspections


WASHINGTON — President Obama on Monday proposed making oil and gas companies pay new fees and higher royalty rates as a way to fund stronger government oversight of offshore drilling.

Interior Secretary Ken Salazar said that the fees would ensure that energy developers — not taxpayers — foot the bill for inspections and strengthened oversight.

“Oil and gas operators should be paying for the cost of these inspections,” Salazar told reporters on a conference call. “The inspection regime that is proposed in this budget (for offshore and onshore development) is premised on the fact that industry should pay.”

Obama advanced the fee proposal as part of his budget plan for the 2012 fiscal year that begins Oct. 1. For the third year in a row, he also repeated his appeal for Congress to get rid of eight tax breaks long enjoyed by oil and gas companies.

Although the administration estimated the tax changes would raise $3.5 billion in fiscal 2012, Barry Russell, president of the Independent Petroleum Association of America, said any immediate gains in revenue would be offset by longer-term losses as companies decide not to produce uneconomic fields.

Under the administration’s fee proposal, offshore drillers would face an charge of up to $30,500 per inspection for rigs operating in more than 500 feet of water and a fee of $31,500 for platforms and other facilities above the water line that have more than 10 wells.

All told, the administration estimates the new offshore inspection fees would raise $65 million in the 2012 fiscal year, up from $10 million in fiscal 2010.

Meanwhile, proposed inspection fees for onshore oil and gas leases would raise an estimated $38 million in fiscal 2012 — enough to nearly offset the $40 million the Bureau of Land Management spends annually managing its inspection program.

Industry leaders say the money should instead come from the billions oil and gas companies already send the federal government each year in royalties, bonus bids and other payments to drill on federal lands and waters.

“We’re providing plenty of revenue and are happy to continue doing so,” said Marty Durbin, API’s executive vice president of government affairs. While it’s important to make sure federal regulators “have all the resources they need,” Durbin said the pool of royalties and bonus bids “would be the more appropriate place to get that revenue.”

Obama is seeking more than $358.4 million for the Interior Department’s Bureau of Ocean Energy Management, Regulation and Enforcement that oversees offshore drilling — a boost of $119 million (or 50 percent) over fiscal 2010 spending on the agency.

The administration said the extra money would pay for hiring new inspectors, engineers and scientists, the establishment of real-time monitoring of key drilling activities and more detailed reviews of companies’ offshore plans.

As an incentive for Congress to support the plan, the White House promised that the spending on the ocean energy bureau “will also facilitate the timely review of offshore (drilling) permits.” Industry leaders and Gulf Coast lawmakers have complained the government has been moving too slowly in approving offshore drilling applications since last year’s oil spill.

The administration also is planning to boost the royalty rates that companies pay for oil and gas produced on federal lands. Offshore royalty rates — now at 18.5 percent — would not be affected, but Salazar said he is studying how to boost the 12.5 percent rate that has been charged for onshore development since 1920.

The White House also proposed establishing new “use it or lose it” style fees for non-producing oil and gas leases. Designed “to encourage more timely production,” the administration says the annual fees — initially set at $4 per acre — would raise a projected $25 million in fiscal 2012.

Oil and gas industry representatives argue there are already enough financial incentives discouraging companies from sitting inactive on drilling leases.

Separately, the administration renewed its appeal for Congress to triple — to 90 days — the amount of time the government has to review proposed offshore drilling projects. The White House first asked for the longer review period after the Deepwater Horizon disaster, but it is opposed by the oil and gas industry and supporters in Congress, including Sens. Mary Landrieu, D-La., and Lisa Murkowski, R-Alaska.

Jennifer A. Dlouhy can be reached at 202-263-6400 or at the e-mail address jdlouhy@hearstdc.com.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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