Con­tin­ued block on drilling costs U.S. bil­lions

The Washington Times Weekly - - Commentary -

With the price of oil at more than $100 per bar­rel, higher gaso­line prices are eat­ing into Amer­i­cans’ bud­gets. Con­sumers, how­ever, are not the only ones los­ing out. The var­i­ous taxes, lease rev­enues and roy­alty pay­ments to fed­eral, state and lo­cal gov­ern­ments for oil and gas pro­duc­tion on pub­lic lands is a sig­nif­i­cant source of rev­enue — among the largest sources out­side of the per­sonal in­come tax. Yet, the Obama ad­min­is­tra­tion stub­bornly clings to a “no new pro­duc­tion in our back­yard pol­icy” — while blam­ing oil com­pa­nies for high prices.

The truth is, by the gov­ern­ment’s own es­ti­mates, due to de­clin­ing pro­duc­tion at ex­ist­ing wells and bu­reau­cratic de­lays on new wells, the fed­eral gov­ern­ment is for­feit­ing rev­enues of more than mil­lions of dol­lars per day. The losses will grow sig­nif­i­cantly if the fed­eral gov­ern­ment does not sell new drilling leases on the Outer Con­ti­nen­tal Shelf and on other pub­lic lands this year.

Oil sup­plies are in­creas­ingly un­cer­tain due to po­lit­i­cal un­rest in the oil-rich Mid­dle East, and U.S. bud­get deficits and the na­tional debt are at all-time highs. Now is the time to ex­pand do- mes­tic oil pro­duc­tion.

In the af­ter­math of the Deep­wa­ter Hori­zon oil spill, the Obama ad­min­is­tra­tion is­sued a tem­po­rary mora­to­rium on off­shore drilling and then on May 30, 2010, ex­tended it to a six­month ban on deep­wa­ter drilling in the Gulf of Mex­ico. At the same time, the ad­min­is­tra­tion an­nounced that it would not be open­ing new ar­eas off the East and West Coasts to pro­duc­tion and it also can­celed planned lease sales off the north coast of Alaska. In the Gulf alone, the mora­to­rium sus­pended work on 33 wells in var­i­ous stages of con­struc­tion and halted new lease sales and sus­pended per­mit­ting for leases al­ready of­fered. Though fed­eral courts struck down the mora­to­rium twice, the gov­ern­ment did not lift it un­til Oct. 12, 2010. Since then, oil com­pa­nies have com­plained of a “per­mi­to­rium,” — the gov­ern- ment is de­lib­er­ately slow­ing the process of is­su­ing per­mits.

For ex­am­ple, In­te­rior Sec­re­tary Ken­neth L. Salazar can­celed a Gulf lease sale last Oc­to­ber and has post­poned un­til 2012 an auc­tion of leases in the cen­tral Gulf of Mex­ico origi- nally sched­uled for March.

An­other auc­tion planned for Oc­to­ber in the west­ern Gulf could also be de­layed un­til 2012.

This could be the first year since 1965 that the fed­eral gov­ern­ment did not sell leases in the Gulf.

While no new pro­duc­tion is al­lowed, the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion projects a de­cline of 240,000 bar­rels per day in oil pro­duc­tion from ex­ist­ing pro­duc­tion in the Gulf of Mex­ico this year. A lack of new leases means the gov­ern­ment will col­lect less rent.

Off­shore leases cur­rently gen­er­ate more than $200 mil­lion in rent pay­ments per year. In ad­di­tion to lease pay­ments, oil com­pa­nies pay an 18.75 per­cent roy­alty to the fed­eral gov­ern­ment on the oil pro­duced.

With oil cur­rently trad­ing above $100 a bar­rel, that equals $4.7 mil­lion in lost rev­enue each day. If the gov­ern­ment’s own pro­jec­tions are ac­cu­rate, that would amount to $1.7 bil­lion this year.

Roy­al­ties, leases and rent make up a siz­able amount of rev­enue each year.

For ex­am­ple, in 2008, the off­shore in­dus­try paid $237 mil- lion in rent, $8.3 bil­lion in roy­al­ties and $9.4 bil­lion for bids on new leases. By com­par­i­son, last year those num­bers dropped, while rent in­creased mod­estly to $245 mil­lion, roy­al­ties fell by more than half to $4 bil­lion and lease bids fell by ap­prox­i­mately 90 per­cent to just $979 mil­lion. This year, if no leases are of­fered, lease bids will fall to zero — from $9.4 bil­lion to zero in just three years.

Vot­ers are de­mand­ing the fed­eral gov­ern­ment bal­ance its bud­get.

Rev­enue from new oil pro­duc­tion would help.

While re­duc­ing gas prices, the oil pro­duced would also re­sult in pay­ments to fed­eral, state and lo­cal gov­ern­ment that could be used to re­duce deficits or the amount of cuts leg­is­la­tors are con­sid­er­ing, or both.

The time for de­lay is over. The Obama ad­min­is­tra­tion should pick up the pace of new per­mits for ex­plo­ration and pro­duc­tion off Amer­ica’s coast and on ar­eas cur­rently off-lim­its.

Rob Bluey is di­rec­tor of the Cen­ter for Me­dia and Pub­lic Pol­icy at the Her­itage Foun­da­tion and an ad­junct scholar with the Na­tional Cen­ter for Pol­icy Anal­y­sis (NCPA). Ster­ling Bur­nett is a se­nior fel­low with the NCPA.

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