By Art Mass, CEN Staff Reporter

Already battling a push to repeal $31 billion in tax breaks, a climate change bill that could reduce demand for their products, and legislation that would strictly regulate the chemicals used in the natural gas fracturing process, the energy industry is now facing a new threat.

Democrats on the House Resources Committee just released a “discussion draft” that would raise the royalties companies pay to drill on federal lands from 12.5 to 18.75 percent and shorten lease terms from 10 to five years.

“We are confronting a very difficult political environment,” said Dan Naatz, vice president for federal resources and political affairs for the Independent Petroleum Association of America.

Royalty payments haven’t been increased since the 1980s, one reason why supporters say the proposed increase is long overdue. In addition,  they contend that the new royalty fees would more accurately reflect what the energy companies would get in the market from private landowners. They also point to increasing deficits as another reason for the feds to reassess what it charges energy companies to drill on public lands.

Colorado has one of the most active BLM-managed oil and gas programs in the nation.

Tyson Slocum, director of the Public Citizen’s energy program, commented, “The federal government sits on incredibly valuable resources and it is about time we start maximizing the return to taxpayers.”

The industry counters that raising its costs now will translate into less domestic production and a greater reliance on foreign energy sources. Andy Radford, senior policy adviser at the American Petroleum Institute, told Jim Snyder of The Hill, that such action would “be a great disincentive for companies to go out and explore. “If you increase the royalty rates, you affect the economics of a project.”

IPAA’s Nance said the proposed changes would impact the smaller,
independent oil and gas operators the most. These companies
employ fewer than 20 workers, on average.

One of the points made by supporters is that adjusting the
onshore royalty rates will align them more closely with what
energy companies are already paying to drill offshore. However,
industry experts point out that the energy pockets found
offshore are usually much larger, making the prospect of paying
higher onshore royalties not much of an economic incentive.

Higher royalties may end up leaving less in government coffers
if companies decide the price is too high to drill on federal
lands, according to  Kenneth Medlock, a fellow at the Baker
Institute Energy Forum at Rice University. “This could push
people away from federal lands, all else being equal.”

Last year, the government collected more than $3.6 billion in
onshore royalty payments. Still,  the rate should definitely be
increased, according to groups like Public Citizen. A spokesman
said, “These are not Hugo Chavez royalty rates. They are very
modest when you compare them to what other countries charge.”
Backers of the bill point to the Government Accountability
Office, which notes that the United States takes one of the
smallest shares of oil and gas revenues of any oil-producing
nation.

Reducing the lease term will probably add fuel to last year’s
debate between the oil and gas industry and Democrats over
the so-called “use it or lose it” provisions. Even President
Obama raised the issue during his campaign, saying higher gas
prices were a result, in part, because energy companies were not
drilling in many of the areas they already had access to.

No doubt, Capitol Hill is not as pro-energy industry as it once
was under the Bush Administration, during which Republicans
included oil and gas companies in a broad manufacturing tax
credit that meant billions of dollars to the industry. Now that
break is on the verge of being eliminated in President Obama’s
budget.

The industry says its fight is more than about taxes, and
believe that it is being ignored by the Obama
administration, a complaint similar to that raised by energy
companies here in Colorado at Governor Ritter and his New
Energy Economy pitch. They say that for all the talk about a
new and comprehensive strategy, with solar, wind and efficiency
playing major roles, the missing piece of the energy puzzle is
oil and natural gas.