Home Office report seeks to increase oil and gas revenues on federal lands

A brief but expected report from Home Office leaders largely concludes that the government is not charging enough for oil and gas produced from federal territory.

Alaska-based oil and gas analysts noted that the administration had not done everything possible to target the location and development of the Arctic as some had anticipated, which could be seen as some sort of victory. for state industry.

Industry representatives said the report is the latest in a series of puzzling messages from the Biden administration regarding energy policy.

Interior officials said in a statement accompanying the report that the agency recommends reforms that would improve taxpayer incomes, discourage speculation in leasing federal land and hold operators more responsible for the site’s remediation.

“The Home Office has an obligation to responsibly manage our public lands and waters – providing a fair return to the taxpayer and mitigating worsening climate impacts – while remaining steadfast in the pursuit of justice environmental, ”said Home Secretary Deb Haaland. “This review highlights the significant shortcomings of federal oil and gas programs and identifies important fiscal and program reforms that will benefit the American people.”

According to the report, federal onshore royalties “are consistently lower than state leases and federal offshore leases” and, in many cases, have never been increased. Interior officials also pointed out that leases not sold in a competitive auction can often be acquired by an operator for “modest” administrative costs without the need to offer a bonus offer.

The report then recommends that officials in the Bureau of Land Management increase royalties for sales of individual leases and initiate rule-making processes to set higher minimum royalties as well as increase the minimum supply of land. $ 2 an acre for most federal leases – a price set in 1987.

“Such low rental prices, coupled with generous 10-year initial lease terms that are frequently extended, encourage speculators to purchase leases with the intention of waiting for resource prices to rise, adding assets on their balance sheets or even resell leases at a reasonable price. profit rather than trying to produce oil or gas, ”the report says.

Republican Alaska Senator Lisa Murkowski said in a statement from her office that the report was “a set of pre-determined conclusions” aimed at ending production on federal lands.

“What is particularly upsetting is that it took Interior 10 months to produce a document of only 15 pages, without any meaningful analysis, and which repeatedly distorts the actual workings of development,” said Murkowski. “The policies he calls for won’t maximize returns for taxpayers or even reduce emissions – instead, they will hurt production in states like Alaska, raise energy prices further, and rise. our country’s dependence on imports. “

Delegation staff also questioned why royalty rates that are a part of the value of production and not nominal costs need to increase over time, as well as how the report and other actions taken by the administration will have an impact on how the industry deploys capital in the country.

President Joe Biden ordered the report via an executive order issued shortly after taking office, directing agencies to review all rules and policies that may have an impact on climate change.

The Home Office claims the power to make most of the changes recommended by regulation.

Alaska Oil and Gas Analyst Brad Keithley wrote by email that from the state’s industry perspective, the report could be positive for what it doesn’t – Alaska-specific provisions or general rules, focused on climate or the environment, leaving room for those articles to be more suited to local conditions.

However, Keithley also noted that the report mentions that domestic agencies will continue to assess ways to revise fiscal conditions “to reflect monetarily the costs of carbon dioxide, methane and nitrous oxide.”

“These can be dealt with as they arise, but it gives the impression that this report is not the last word on what might happen,” he wrote.

Alaska Oil and Gas Association CEO Kara Moriarty called the report simply “disheartening,” especially given the president’s recent decision to sell off part of the strategic oil reserve and his urging to countries OPEC to increase production to curb price increases amid a recovery in demand after the 2020 market collapse.

“Why don’t you send signals for immediate policy and future policy that say, ‘We want to meet this demand and increase the supply here.’ Moriarty said.

Roger Marks, a longtime Alaska oil economist, said federal leases are often more tax-efficient for oil and gas operators because royalty rates are typically lower than those tied to public or private acreage and the federal government does not impose a tax on severance payments on the resources produced.

Royalty rates in the lower 48 states with significant production typically range from 16.67% to 25% in parts of Texas.

The state of Alaska charges a royalty of 16.67% on most new leases and 12.5% ​​on old leases that supply the vast majority of North Slope oil production.

Since oil companies primarily judge lease investments based on an expected rate of return, higher royalty rates on produced resources would likely lead to declining bids, but this might not be the case. a bad thing for the Treasury as long as there is finally production, according to the brands.

“If a property comes in (and produces) you will end up making a lot more money, and if the property does not turn out to be commercial you will end up making less money because the supply will be less”, a- he declared.

Marks also said he previously encouraged the Alaska Congressional delegation to find ways to increase taxes and fees for production on federal lands because states are at a competitive disadvantage. In Alaska, the situation applies primarily to offshore production from fields beyond the three-mile state border. That’s because the state’s oil production tax applies to the 23 million-acre-Alaska National Petroleum Reserve on the North Slope, the result of management legislation specific to NPR-A. . In addition, the royalty rates are 16.67% for leases in the “high potential” areas of the NPR-A – mainly in the eastern and more accessible part of the reserve – and 12.5% ​​for the NPR-A areas. other areas.

Bidding activity in NPR-A lease sales has fluctuated with the industry’s perspective on the region’s prospectivity. Millions of dollars in bids were submitted in the years following the discovery of the large Alpine oilfield on neighboring state lands, followed by a period of relative dormancy before the discovery of Willow by ConocoPhillips in 2017. does refocus attention on the NPR-A.

Elwood Brehmer can be contacted at [email protected].

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