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ATR Energy Tax Hike Series 

Nonproducing Oil & Gas Lease Fees
 
Current Law
There is currently no law penalizing oil companies for having nonproducing oil and gas leases.
 
Obama Proposal
The FY 2010 Administration Budget calls for $1.156 billion in added fees from 2010-2019 by taxing non-producing oil and gas leases.
 
ATR Analysis
As Representative Doug Lamborn (R-CO) told The Energy and Mineral Resources Subcommittee, “These fees will not make companies develop any faster… In fact, the fees constitute a purely punitive proposal designed for what appears to be cheap political gain.” [1]
 
The proposed $4/acre fee is estimated to cost the energy companies $122 million per year. [2]
 
It costs billions of dollars to lease federal lands to explore for domestic oil and natural gas. It can take companies years to obtain environmental permits, geologically evaluate the land, and perform exploratory drilling, before they are able to begin producing commercial supplies of oil. Even after exploration it is not unusual to spend in excess of $100 million to drill a dry hole.
 
Oil companies take on tremendous risk as they are not allowed to evaluate the viability of the land until after they obtain a lease. As Energy Tomorrow reports, even if they find oil it can take seven to ten years “for environmental and engineering studies, to acquire permits, install production facilities (or platforms for offshore leases) and build the necessary infrastructure to bring the resources to market.” [3]
 
Charging fees for nonproducing oil and gas leases will reduce domestic exploration. This will continue our dependency on foreign oil and drive up the costs of oil, natural gas, and gasoline. These penalties will increase the risk of domestic exploration to the point that companies will only explore in other countries, leaving the vast U.S. reserves unused.


[1] Committee on Natural Resources, Republican Site, “Lamborn: Proposed Taxes on “Non-Producing” Oil and Gas Leases will Harm American Energy Production.” March 17, 2009. http://republicans.resourcescommittee.house.gov/PRArticle.aspx?NewsID=1759
[2] Rocky Mountain Association of Geologists, “Non Producing Lease Definition Needed, DOI’s Salazar Told.” 2009 http://www.rmag.org/public_issues/index.asp?content_id=251&content_name=251
[3] Energy Tomorrow, “Facts about Non-Producing Leases,” http://www.energytomorrow.org/Facts_about_Non_Producing_Leases.aspx