U.S. to consider raising oil, gas royalty rates

WASHINGTON Tue Mar 24, 2009 5:30pm EDT

U.S. Interior Secretary Ken Salazar speaks during an interview with Reuters in Washington March 24, 2009. REUTERS/Molly Riley

U.S. Interior Secretary Ken Salazar speaks during an interview with Reuters in Washington March 24, 2009.

Credit: Reuters/Molly Riley

WASHINGTON (Reuters) - The Obama administration will decide later this year whether to raise the royalty rates energy companies would pay on the oil and natural gas produced on federal leases, U.S. Interior Secretary Ken Salazar said on Tuesday.

Companies now pay a royalty rate ranging from 12.5 percent to 18.75 percent of the value of the oil and gas they drill. However, Salazar said other countries charge higher royalties and the Obama administration wants to make sure U.S. taxpayers are treated fairly.

"We are looking at royalty rates and compensation paid for both onshore and offshore oil and gas development," Salazar told Reuters in a wide-ranging interview. "We will make sure the American citizen is getting its fair return."

Salazar refused to speculate on how much the royalties rates might be changed, but said the Interior Department will decide before the end of the year.

"I don't want to prejudge where we're going to go, because it's a complicated issue," he said. "We need to be fully informed, frankly, before we get to the point where we have a proposal on how we want to adjust royalties."

Salazar rejected arguments by energy companies that higher royalties would discourage domestic oil and gas production, pushing companies to take their business to other countries.

"From a global point of view, we have a shortage of oil, and when you start looking at the emerging consumption coming from places like China and India and the rest of the Third World, there's going to be a market, seems to me, for oil and gas," he said.

Salazar said a private landowner leasing his property to a company drilling for oil or gas would insist on a "fair return for his resources. "We have to do the same on behalf of the American people (with public lands)," he said.

Salazar said oil and gas companies "have done very well in this country" and they have big cash reserves from the record profits they have earned.

"That doesn't mean that you want to be punitive and unfair to them," he said. "But I think what we need to do is figure out what's fair for the American citizen, what should the American taxpayer be getting back now."

Salazar also said he supports expanding offshore oil and gas production as a part of a larger U.S. energy plan. The department is considering contracting private companies to collect seismic data on oil and gas reserves in recently opened areas off the Atlantic and Pacific coasts, because existing information is outdated, he said.

"I don't know how you can make honest thoughtful decisions, whether it is to develop or not to develop (offshore supplies), without having the best science on the table," Salazar said.

He said it would cost about $1 billion to collect new data on offshore resources and the department will decide by the summer how to proceed.

Although Salazar is open to developing some new offshore areas, he said the Obama administration does not support drilling in Alaska's Arctic Natural Wildlife Refuge.

Lawmakers have introduced legislation to would allow companies to tap the refuge's oil through directional drilling based outside ANWR's boundaries and going under the reserve at an angle.

"Unless there's something that I don't know about directional drilling in the proposal, we're not opening ANWR," Salazar said.

(Reporting by Tom Doggett; Editing by Marguerita Choy)

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