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Polis Introduces Deepwater Drilling Royalty Reform Bill

Press Release

Location: Washington, DC

In response to BP's Deepwater Horizon oil spill disaster, Congressman Jared Polis (D-CO) has introduced The Oil Pollution Taxpayer and Environmental Protection Act to reform the process of assessing and collecting offshore drilling royalties and end federal incentives for deep sea drilling in U.S. waters. This is the first of a number of oil and gas proposals Polis plans to introduce in the coming weeks.

"With the national debt and BP spill weighing heavily on America's mind, it makes no sense that taxpayers are subsidizing the risky drilling practices of multi-billion dollar oil companies, while forced to bare the economic and environmental costs when things go wrong," said Polis. "No matter how you look at it--even when taking into consideration any increased tax revenue from increased drilling--we're still being sold short. This bill will help ensure that the American people are appropriately compensated for the use and possible misuse of our precious natural resources."

In recent years, the Government Accountability Office has released multiple reports outlining the shortcomings of the U.S. offshore royalty policy and royalty-relief programs, which encourage domestic exploration and production in deep waters.(1,2) The drilling industry itself has said that these artificial incentives have pushed the practice to greater depths and greater limits, calling off-shore deep-water production "very risky" and saying that without these economic incentives it "simply wasn't economic given the risk." (3)

"Every day we're faced with changing estimates of how much oil is being spilled in the Gulf, a number that directly relates to the liability that can be levied against the responsible parties," said Polis. "This is a harsh reminder of how little we know about the amount of oil or gas the industry removes on a regular basis, which severely limits our ability to ensure that we are being accurately paid for the resources we're selling."

Polis' bill would reform U.S. royalty policy by:

· Repealing Sections 344 and 345 of the Energy Policy Act of 2005 for all new leases. These Outer Continental Shelf (OCS) Deep Water and Deep Gas Royalty Relief provisions waive royalty fees for the express purpose of encouraging deepwater drilling, while also pushing the safety and fair-market limits of high risk deepwater drilling.

· Amending the Outer Continental Shelf Lands Act to raise the statutory minimum for royalty payments for off-shore leases from 12.5% to 20%. The administration has recently raised royalty rates to 18.75%, but an appropriate higher rate should be required by statute.

· Directs the Interior Secretary to ensure that lease and royalty payments provide a fair return to the American taxpayer by requiring the Department of the Interior (DOI) to publish in the Federal Register a written justification for how royalty rates for new leases are derived.

· Requires the Interior Secretary to take into consideration average royalty rates from around the globe when setting U.S. royalty rates. The U.S. Government's take ranks near the bottom when compared to many other countries and systems.

· Makes companies responsible for paying royalties on spilled oil. This oil is a natural resource owned by the American people, and they should be compensated for their loss of revenue.

· Requires the Interior Secretary to finalize outstanding standards and specifications for acceptable electronic flow monitoring systems, and directs the DOI to initiate rule making that will require the use of these devices and allow for an accurate accounting of oil and gas removed. This will allow regulators to know exactly how much oil and gas is being removed from public ownership, and how much is lost when a tragedy like the BP spill takes place.

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