OFFSHORE DRILLING:

Battle brews over Interior bid to increase regulatory fees

The nation's top regulator for offshore oil and gas drilling this week said he agreed industry should pay a greater portion of its oversight costs and backed calls to give regulators more time to review drilling projects.

Michael Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said his agency is actively considering a proposal by the president's Oil Spill Commission to administratively raise fees on oil and gas operators to cover the costs of regulating the industry.

"These are public resources, and it makes sense for the companies that are benefitting from exploiting the resource to pay for the cost of regulation," Bromwich said at a conference this week on ocean science. "I think it makes good sense."

Bromwich did not specify which, if any, fees his department might seek to raise without congressional approval.

While raising fees would help pay for new rig inspectors, scientific research and a planned reorganization of the former Minerals Management Service, Bromwich said he would look to Congress to determine the appropriate balance between fees, direct appropriations and other sources.

The proposal has drawn a hostile response from industry and Republican lawmakers who warn that raising fees could drive more operations overseas at a time when companies are already coping with new drilling regulations and a slowdown in permits.

Critics of the plan say additional inspection and oversight funding could be raised through the billions of dollars in annual revenue companies generate through bonus bids, lease rentals and production royalties.

"Rather than simply funnel these extraordinary payments from industry into the federal Treasury's general fund and then go back to the companies to pay again for the cost of being regulated, the government should figure out a way to pay for its own regulatory activities out of the existing revenue stream," said Nicolette Nye, a spokeswoman for the National Ocean Industries Association.

Offshore revenues in the Gulf of Mexico totaled about $5 billion in the last fiscal year but reached as high as $18 billion in 2008 -- several times BOEMRE's current budget of about $350 million.

House Natural Resources Chairman Doc Hastings (R-Wash.) yesterday said he would oppose any proposal to increase taxes or fees during a fragile economy in which drillers face regulatory uncertainty in the wake of the BP PLC oil spill last April in the Gulf.

"The offshore oil industry currently contributes over $13 billion to the general Treasury," said Hastings spokesman Spencer Pederson. "Only around $400 million is used to fund their regulatory body -- only a small fraction of the total money contributed by industry."

But Rep. Ed Markey (D-Mass.) the committee's top Democrat, said agencies like the Securities and Exchange Commission are already funded largely by the companies they regulate. The same should be true for oil and gas firms.

"It's wise to pursue that line of thought if the industry wants to have a regulatory scheme in place that allows for drilling in a timely fashion," Markey said.

Rep. George Miller (D-Calif.) said the costs of monitoring and environmental enforcement should be considered part of a company's overhead.

"It's not going to be crippling to the operations," he said. "It's barely noticeable."

What fees can Interior raise?

There is some uncertainty over what fees Interior can raise without approval from Congress.

A BOEMRE spokeswoman said yesterday the Obama administration has authority to raise the rental fees it charges to nonproducing lease holders, a portion of which can be used to directly fund agency operations.

Such fees are small in comparison to bonus bids and royalties and amounted to less than 5 percent of the $4.7 billion generated by Gulf drillers last year.

The administration could also raise royalty rates -- currently set at 18.75 percent -- but would need an act of Congress to siphon that money specifically to Interior, said spokeswoman Melissa Schwartz.

Inspections fees cannot be raised without Congress' approval, she said.

An omnibus funding bill that died last month in the Senate sought to raise an additional $50 million for offshore safety by raising inspection fees to between $12,000 to $36,000 depending on the type of platform and number of operating wells (E&E Daily, Dec. 15, 2010).

The measure would have partially fulfilled a $100 million supplemental request from the Obama administration earlier this year as part of its response to the BP oil spill.

Under existing law, inspection fees paid by oil and gas operators amount to about $10 million per year, or about 3 percent of BOEMRE's annual budget, the commission report found.

But a commission source in a statement yesterday suggested Interior may have broader latitude to raise new revenues.

"Existing statutory authority at DOI includes fees for specific services like inspections and permits that the agency charges," the source said.

The commission's 380-page report cited language from the Outer Continental Shelf Lands Act that states offshore leases shall contain "such rental and other provisions as the [Interior] secretary may prescribe at the time of offering the area for lease."

"There may be some services that are not covered that should be" the source added. "The recommendation is clear that if adequate authority does not exist already, it should be given by Congress to cover an assessment for the regulatory costs."

Exploration plan reviews

Bromwich also said he agreed with the commission's recommendation to double the amount of time BOEMRE has to review exploration plans but suggested 60 days would still not be long enough for some reviews.

"We would like as much time as possible so that we do an adequate job," Bromwich said. "I'm hopeful we can do a lot of the work in the 30 days that is the statutory prescription. Sixty days would be better, 90 days would be even better."

Language to lengthen the permitting window to 90 days was included in the Senate's failed omnibus appropriations package last month, drawing loud opposition from several Republican lawmakers and Democratic Sen. Mary Landrieu of Louisiana (E&ENews PM, Dec. 7, 2010).

Bromwich fired back at critics who charged that the administration's proposal to allow 90 days for such reviews would give the agency an excuse to take a lax approach to permitting.

"That's just not true," he said. "It's extraordinarily difficult to do those within 30 days, and in some cases will be very difficult to do within 60 days. ... We really do need more time."

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