Budget seeks mandatory conservation funding, increased O&G fees

Posted: Apr 12, 2013

Written by

Phil Taylor, Greenwire
Drilling rig

President Obama's proposed fiscal 2014 budget for the Interior Department would require oil and gas companies to pay more to drill on public lands and waters and for the first time seeks full mandatory funding for the nation's premier conservation program.

Obama's $11.7 billion request for Interior is more than 4 percent higher than 2012 enacted levels and would mark a significant boost over the sequester levels Congress passed in its fiscal 2013 continuing resolution late last month.

The budget request would seek swifter permitting for oil and gas wells on public lands but would also impose higher royalties and new fees for nonproducing leaseholders, policies that are sure to draw fire on Capitol Hill. In total, the legislative proposals related to oil, gas and coal development in the president's budget request would raise about $3 billion over the next decade.

The administration has proposed diverting a portion of oil and gas royalties to provide $2 billion for an Energy Security Trust over the next decade to fund research into advanced vehicle technologies.

The 2014 budget also for the first time seeks a mandatory funding source for the Land and Water Conservation Fund and requests $600 million for the program in fiscal 2014, a one-third increase over its fiscal 2013 request and more than $200 million higher than current funding levels.

The nearly 50-year-old program uses royalties from offshore oil and gas production to fund land acquisition, private land conservation easements and grants for urban recreation projects, but it depends on yearly appropriations from Congress that have fallen well short of its $900 million cap.

Under the president's budget request, beginning in 2015, LWCF would be funded at $900 million annually in mandatory funding.

"The budget represents an unprecedented commitment to America's natural heritage," the budget said. "This funding will provide the stability needed for agencies and states to make strategic, long-term investments in our natural infrastructure and outdoor economy to support jobs, preserve natural and cultural resources, bolster outdoor recreation opportunities and protect wildlife."

The budget represents a mixed bag for oil and gas developers.

As the White House announced in January, the budget proposes a 20 percent boost to the Bureau of Land Management's oil and gas program, a "revamped permitting pilot office," and ongoing administrative efforts to expedite development. But like past budget proposals, this year's proposal calls for new inspection fees designed to raise about $48 million and offset some of the new costs. It also proposes a fee for leaseholders that are not producing minerals.

Congress has repeatedly rebuffed both fee proposals, despite support among Democratic leaders.

The agency's budget request also includes significant reforms to royalty collections on public lands, including minimum royalty rates for oil, gas and similar products; an increased onshore oil and gas royalty rate; a pilot price-based sliding scale royalty rate; and repealing statutory royalty relief.

"A number of recent studies by the Government Accountability Office and DOI's Inspector General have found that taxpayers could earn a better return through policy changes and more rigorous oversight," the budget notes.

But those proposals were quickly rejected by the Independent Petroleum Association of America, which warned the new fees and royalties -- combined with the administration's long-standing proposal to end billions of dollars in annual tax breaks -- would provide disincentives for companies to operate in the United States.

"The administration claims to support oil and natural gas development on federal lands, but the proposed list of increased fees, royalties and regulations will only make it more burdensome for small producers to operate on federal lands and waters," said Virginia Lazenby, IPAA chairwoman and CEO of Nashville, Tenn.-based Bretagne LLC. "The president's budget claims it would make America a 'magnet for jobs,' but raising taxes, royalties and fees on the American oil and natural gas industry would surely decimate job creation."

The overall budget request for BLM is $1.2 billion, which is $32.6 million -- or 2.9 percent -- more than 2012 funding levels.

The Obama budget also seeks $169 million for the Bureau of Ocean Energy Management and $222 million for the Bureau of Safety and Environmental Enforcement, which is $5 million more than the request for those two budgets combined for fiscal 2013.

The budget also again proposes implementing a $1 administrative fee to graze livestock on public lands, a plan that last year drew jeers from Republicans and stock-growers' groups but is strongly supported by environmentalists who say the program drains taxpayer dollars.



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