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Lawmaker joins push to up cost of drilling

- The Washington Times - Monday, June 1, 2009

A powerful congressional chairman has joined a growing number of Democrats who want to sharply increase the cost of drilling leases that the government provides on federal lands, a move vigorously opposed by Big Oil and Republicans.

Rep. Nick J. Rahall II, West Virginia Democrat and chairman of the House Natural Resources Committee, has proposed a plan to boost royalty rates by 50 percent and to cut the lease periods to five years from the current 10 years or more. His recommendation would be part of a sweeping overhaul of the $22 billion, scandal-tarred oil and gas drilling program that the Interior Department oversees.

The plan also appears in line with the broader energy goals of Interior Secretary Ken Salazar, who is conducting a review of the Interior Department's handling of oil and gas leases and royalties as the House prepares to push through a bill to address climate change and the Senate works on its own energy legislation.

Mr. Salazar's office did not respond to a request for comment about the Rahall plan. Mr. Salazar has been a vocal advocate of developing renewable energy, such as wind and solar, on federal lands. He moved to cancel oil and gas leases approved by the Bush administration, including 77 natural gas leases on 100,000 acres in Utah, though he agreed to reconsider them to resolve a dispute he has been having with Sen. Robert F. Bennett, Utah Republican.

Mr. Salazar has said he favors higher royalty rates in return for the extraction of oil and natural gas on federal lands, where rates are generally lower than on private lands. But he is not planning to announce major changes in the federal program until later this year.

Mr. Rahall has yet to introduce a formal bill, and a committee spokeswoman declined to comment on Mr. Rahall's timetable for further action. Still, with House leaders hoping to bring a climate-change bill to the House floor before August, Mr. Rahall is widely expected to move quickly to ensure his plan can be added to that legislation.

"The committee has wanted to get involved in this, and they are feeling pressure from the environmental community," said Dan Naatz, vice president for federal resources and political affairs at the Independent Petroleum Association of America. The association represents smaller independent drillers. It opposes the plan because, he said, the measure would raise costs and make it more difficult for its members to attract financing for drilling projects.

The plan, written by Democratic staffers on the committee, is intended to address what is says are unethical relationships between Interior Department leasing managers and the oil and gas industry. In addition to shorter lease terms, it would raise royalty rates to a minimum of 18.75 percent, the same rate charged for offshore oil and gas extraction.

The bill "would reform the onshore oil and gas leasing program in order to provide a more coordinated, efficient and competitive use of oil and gas resources," according to an outline of the plan provided by the committee.

Mr. Rahall's plan fits neatly into the broader efforts of the Obama administration and congressional Democrats to make a "dramatic shift" in energy production toward green sources, said Sharon Buccino, director of land and wildlife programs at the Natural Resources Defense Council.

"This is a key part of moving that agenda forward," she said.

Republicans, however, are poised to oppose the plan. Jill Strait, a spokeswoman for Rep. Doc Hastings of Washington, the ranking Republican on the Natural Resources Committee, said the plan "doesn't look like a good blueprint for American energy development." She said it will curtail drilling by smaller oil and gas companies and eliminate jobs.

Mr. Naatz said the practical impact of the plan would be to reduce domestic oil production while drillers are hurting from the economic recession. "It adds a burden at a very difficult time," he said. The American Petroleum Institute, which represents large oil companies, is also ready to lobby against the changes. "These things are going to have material impacts on the economics of wells. We'll see less bidding on leases and lease sales," said Andy Radford, a senior policy adviser at the institute.

The plan shows that some Democrats are ready to renew the "use it or lose it" stance they took last year when oil prices spiked to new levels. Seeking to counter Republican arguments in favor of expanded domestic oil and gas drilling on the Outer Continental Shelf and in the Arctic National Wildlife Refuge, House Democrats pushed legislation that would have forced oil and gas companies to give up unused leases on 68 million acres of federal land in exchange for new leases elsewhere.

Their bill, known as the DRILL Act, failed to win a required two-thirds vote for passage in the House when the bill was brought to the floor under a fast-track procedure. But it still attracted support from 218 Democrats and 26 Republicans.

Mr. Rahall's bill would make numerous other changes to federal oil and gas leasing. Among other actions, it would :

• End the "payment-in-kind" option that allows companies to pay royalties in oil and gas rather than cash. Mr. Salazar has said he would consider ending the program.

• Tighten royalty payment rules through new penalties, elimination of interest on overpayments, and other adjustments.

• Consolidate Interior Department leasing activities into a new Office of Federal Energy and Mineral Leasing, and end leasing by the Minerals Management Service and the Bureau of Land Management.

• Require the adoption of five-year plans for oil and gas leasing on federal lands similar to those developed for offshore leasing.

• Create an Oceans and Coastal Trust Fund funded by revenues from Outer Continental Shelf leases and royalties.

• Impose new environmental restrictions to curtail pollution from offshore oil drilling.

• Impose royalties for the first time on uranium mining.

The Interior Department's management of oil and gas leasing has been the subject of a series of critical reports by the Government Accountability Office, which has called for a "comprehensive reassessment" of federal rules that investigators say fail to encourage drilling on leased lands and impose longer terms and lower rates than states and other countries.

In September, the department's inspector general reported that "a culture of ethical failure" had taken hold at the Minerals Management Service office in Lakewood, Colo., where 13 employees managing the $4.3 billion royalty-in-kind program were purported to have ignored federal ethics rules,engaged in sex and drug abuse among themselves and with industry representatives, and accepted gifts from those same representatives. The department terminated and demoted employees in the office last fall but did not provide specifics.