Fee Cut for Oil Wells on Federal Lands : Energy: The Administration will lower royalties that certain small producers must pay to the government. It’s part of Bush’s effort to boost domestic production.
WASHINGTON — In a move intended to boost domestic oil production, the Bush Administration has decided to reduce the royalties it collects on crude oil produced by thousands of “stripper†wells on federal lands.
In recent years, low oil prices and the resulting low profits have idled many of the wells, which are charged a 12.5% royalty by the Interior Department. The Administration now hopes to stimulate their return to production with a sliding royalty scale that would provide new incentives to the smallest producers.
A stripper well is one with an output of no more than 15 barrels a day. Scattered across the West, they are concentrated on Bureau of Land Management property in New Mexico, Wyoming and California.
Administration sources estimated that additional output from about 15,000 of the marginal producers, mostly on land owned by the BLM, could add 4.7 million barrels per year to domestic production.
Steven Goldstein, a spokesman for the Interior Department, confirmed that a sliding royalty scale will be put into effect. Under it, the government will charge all stripper producers on a sliding scale of 1.3% to 12.5%, the maximum for 15-barrel-a-day producers.
According to officials of the Interior Department’s Minerals Management Service, about 23,000 producing oil wells are on federal lands in the United States. They have a combined output of about 120 million barrels a year.
Of these, about 15,000 wells are in the “stripper†category; most of those produce substantially less than the 15-barrel-per-day maximum. Another 6,000 wells have been taken out of production altogether, and recent analyses suggest that as many as 80% of them could be restored to production.
The Administration plan, which is consistent with Bush’s emphasis on boosting oil production, is expected to be announced today during his campaign travels. The reduced royalty scale will be put into effect for a five-year trial period.
Should oil prices reach $28 per barrel for six consecutive months, the lower payment schedule could be rescinded, officials said.
Because of the massive production from Saudi Arabia, domestic oil prices for months have hovered around $20 per barrel or less, causing thousands of marginally profitable wells in the United States to be taken out of production.
Stripper wells on federal lands, mostly owned by small operators and ranchers, now produce about 22 million barrels per year.
California has 1,700 stripper wells among the 3,500 wells on federal lands within its borders.
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