House passes budget bill with array of fees, royalty hikes, prohibitions for oil and gas

The House passed a $2 trillion budget bill Nov. 19 with a long list of increases in federal royalties and fees, plus new fees, new taxes, and barriers to leasing in the Arctic National Wildlife Refuge, the Pacific, Atlantic, and eastern Gulf of Mexico.

The Build Back Better Act, H.R. 5376, a mix of social spending and measures concerned with climate change, passed on a party-line vote of 220-213. It goes to the Senate, where changes are expected and may not be completed in the workdays remaining in 2021.

The overall estimated cost is a subject of wide disagreement, but there is no question that it has a long list of higher costs for oil and gas companies, especially those operating on federal lands.

The bill contains “oil and gas provisions that are nothing more than punitive measures,” said Erik Milito, president of the National Ocean Industries Association. “These include arbitrary new fees that would add millions of dollars in operating costs, pricing out US production.”

“This bill taxes American energy, restricts access to our own resources and advances the same type of ‘import-more-oil’ strategy that this administration has been promoting,” said American Petroleum Institute President Mike Sommers.

To Rep. Raul Grijalva (D-Ariz.), chairman of the House Natural Resources Committee, the bill’s provisions are a matter of “increasing outdated oil and gas royalty rates and fees” and promoting change to minimize global warming.

New fee on methane

A methane “waste emissions charge,” if enacted, would apply not just to operations on federal land but to all onshore and offshore oil and gas exploration and production work, as well as oil and gas gathering lines, upstream and midstream gas pipeline transmission, gas pipeline compression, onshore gas processing, underground storage, liquefied natural gas storage, and LNG import and export equipment.

It would be $900/ton for methane emissions in 2023, $1,200 in 2024, and $1,500 thereafter.

For production sites, the new fee would apply to emissions that exceed two-tenths of 1% of the natural gas sent to sale, though an alternative calculation also is provided. For natural gas transmission, upstream from retail utility operations, the fee would apply to emissions that exceed 0.11% of the gas sent to sale.

That fee emerged from the House Energy and Commerce Committee as a proposed amendment to the Clean Air Act. It was derived from assumptions about the “social cost” of methane and top-performer voluntary programs of emission control within the oil and gas industry. It also drew on the 2025 targets of the Oil and Gas Climate Initiative, a CEO-led voluntary industry program.

Fees and more fees

The list of fees that emerged from the Natural Resources Committee is far longer but limited to work on federal lands. Some of the fees appear to have been modified a bit when they went through the House Budget Committee.

The royalty rate for all new onshore oil and gas leases would be 18.75%, up from the 12.5% minimum now in place. For offshore, the minimum would be 14%, and the policy option of royalty relief for economic reasons would be terminated.

Royalties for gas would cover all gas, including gas vented, flared, or leaked (fugitive emissions) from onshore and offshore operations in the upstream, with an exception only for 48 hours of emissions during an emergency.

Onshore minimum bids and rental rates would rise, and the primary term for onshore leases in the 48 contiguous states would be limited to 5 years. An “expression of interest fee” of $15-50/acre would cover Interior Department costs.

A new annual “conservation of resources fee” would be set at $4/acre onshore and offshore, and a new annual “speculative leasing fee” would be set at $6/acre for new nonproducing leases. No noncompetitive leasing would be permitted. Bonding to cover potential costs would need to be updated by Interior.

Offshore inspection fees are specified, while onshore inspection fees would be required from Interior. A severance fee would be collected by Interior at a rate of $0.50/boe produced.

An annual fee would be levied for “idled” wells, defined as wells idled for at least 2 years and for which there is no anticipated beneficial future use.

An annual fee would be imposed on offshore pipeline owners: $1,000/mile in waters less than 500 ft deep and $10,000/mile in deeper waters.

The leasing program for the coastal plain of the Arctic National Wildlife Refuge would be repealed, and all payments made for leases would be returned to lessees. New exploration and production would be barred in the Pacific, Atlantic and eastern Gulf of Mexico, a codification of what has been the status quo for many years.