The top lawmaker on the Senate Appropriations subcommittee that funds the Interior Department yesterday said the Obama administration's proposal for offshore oil and gas companies to foot a greater portion of their oversight costs is environmentally prudent and economically reasonable.

Sen. Jack Reed (D-R.I.), at a hearing to discuss the agency's fiscal 2012 budget, said Interior proposals to charge inspections fees ranging from $17,000 to $31,500 are "business-like" and will not unduly burden the companies that operate in the Gulf of Mexico.

"This money seems to be essential to benefit these companies and the American public by allowing you to be more thorough in your inspections, more confident in your leasing," Reed told Interior Secretary Ken Salazar. "I am just surprised that this would be greeted by any opposition."

As an example, Reed said BP PLC generated $10.9 billion in revenue last year in the Gulf but would be asked to pay $1.5 million under Interior's new inspection scheme, or 0.01 percent of its revenue.

Interior's $506 million request for the agency that made up the former Minerals Management Service would be partially offset by $65 million raised through inspection fees. A separate proposal to impose a $4-per-acre fee on nonproducing leases both on and offshore would raise an additional $25 million in 2012 and $874 million over the next decade.

Republican lawmakers and industry trade groups have opposed the proposals on the grounds that revenue should come from the billions of dollars in lease bonus bids, rentals and royalties operators already pay annually to the U.S. Treasury.

At yesterday's hearing, Sen. Lisa Murkowski (R-Alaska), the subcommittee's ranking member, repeated concerns that the fee on nonproducing lease holders could unfairly punish companies that seek to produce but have been unable to obtain drilling permits from federal agencies.

Murkowski said Royal Dutch Shell PLC's decision to pay more than $2 billion for leases in 2005 for offshore Alaska and invest tens of millions of additional dollars planning for drilling represents due diligence on developing a lease.

"That company is now halfway through its lease term, but the [U.S.] EPA is preventing the company from developing its leases by not issuing necessary air permits," Murkowski said, referring to a remand late last year by EPA's appeals board of a Clean Air Act permit Shell needed to drill in the Beaufort Sea. Shell later blamed EPA for its decision to forego drilling in 2011 (E&E Daily, Feb. 4).

"They want to produce in the worst way," said Murkowski, who called the proposed fee "adding insult to injury."

Murkowski said she was also concerned that an Interior decision to conduct a supplemental review of a "very large oil spill" in the Arctic's Chukchi Sea could further delay drilling permits in her state (Greenwire, Feb. 7).

Salazar said that while he had hoped Shell could have initiated drilling this summer, Interior was on schedule to issue drilling approvals by summer 2012.

Interior Deputy Secretary David Hayes added that the supplemental spill review in the Arctic was based on comments over the past several months that the environmental review used to justify a 2008 lease sale in the Chukchi failed to consider the blowout of the Macondo well last April in the Gulf.

"It assumed that no blowout had occurred in 30 years and had the usual pre-Macondo suggestion that a blowout was virtually inconceivable," Hayes said, adding that Interior would be reviewing Shell's drilling permit in parallel with the spill review and that the agency was sensitive to the timing needs of Arctic drilling.

Legislation to extend leases

Sens. Mary Landrieu (D-La.) and Kay Bailey Hutchison (R-Texas) yesterday introduced legislation to give oil companies additional time to develop leases based on the amount of time lost during Interior's months-long drilling moratorium last year.

The "Lease Extension and Secure Energy Act of 2011," would issue a blanket extension for one year to companies that acquired leases during previous sales.

"We are no longer living under a moratorium in the Gulf of Mexico, but we are still struggling to live under a permitorium," Landrieu said at a news conference yesterday. "Giving back this time is simply a matter of fairness."

Landrieu called BP and its contractors "one bad actor" but said many other companies have been unfairly penalized by the additional red tape put in place in the wake of the BP spill.

A 'modest' decline expected

Salazar also reacted to concern from lawmakers and industry that the Gulf, while able to maintain most oil and gas production in the wake of the Deepwater Horizon spill, is set to experience dramatic declines as fewer wells are available to replenish lost production.

"While there may be some modest decline in the production in the Gulf of Mexico because of Deepwater Horizon and to make sure we are doing exploration and production in a safe way, it is modest," Salazar said.

He added that the United States now has more rigs in the Gulf than it did a year ago.