Interior official defends oil program amid federal lands production dip

Interior last year collected royalties on more than 97 million barrels of oil produced on federal lands, a reduction after five years of gains, according to Interior data. The recent decline has fed ongoing GOP attacks on White House energy policies amid rising gasoline prices.

But Abbey on Wednesday said the decline is a result of market dynamics, noting that the industry is attracted to the “easy plays” on state lands and private lands.

Indeed, drillers have increasingly flocked to areas including the Bakken formation that spans North Dakota and Montana. Oil production in North Dakota now surpasses 500,000 barrels per day.

“It’s a business decision, where the industry drills,” Abbey told reporters, and he also noted the U.S. natural gas boom is driving drilling into areas away from Western states, where Interior is a huge landowner.

“No doubt the aggressive development of shale gas and shale oil has led to a shift to private lands in the East and to the South, where there is less amount of federal mineral estate in those sections of the country,” Abbey told lawmakers.

Republicans have consistently alleged that the Obama administration is making too few public lands and waters available for drilling and taking other steps that hinder development.

Sen. Lisa Murkowski (Alaska), ranking Republican on the Appropriations subcommittee on Interior, Environment and Related Agencies, criticized BLM proposals to impose various new fees on oil-and-gas companies operating on federal land, and took aim at the planned increase in onshore royalty rates as well.

“The discrepancy between production on state and private lands versus federal lands also concerns me as I review new policies proposed in the fiscal year 2013 budget that will make leasing on federal land less competitive,” she said in her opening statement Wednesday.

“When companies have the option of oil exploration on large new reserves on state and private lands in North Dakota and Texas, or for natural gas in the vast Marcellus shale, I question the wisdom of proposals to increase federal onshore royalty rates, put in place new inspection and drilling permit fees and charge a fee on so called ‘non-producing leases.

Murkowski said Interior plans could also send investment to other nations.

But Obama administration officials said plenty of areas are available for development, and plenty of drilling permits have been issued.

Abbey, at the hearing and afterward, predicted that oil production on federal lands will rise again amid high prices and the improving economy.

Interior Department data show that the number of oil-and-gas drilling permits for federal lands was 4,244 in fiscal 2011 and 4,090 the year before that, which is higher than the early years of the G.W. Bush administration but much less than the fiscal 2007 peak of more than 7,000.

Abbey also said there have been a number of improvements to the federal lands oil-and-gas leasing program, which he said was “on the verge of collapse” when the Obama administration took over.

He said the Bush administration’s mentality of “leasing everywhere and anywhere” created problems.

Nearly 50 percent of the parcels offered came under formal administrative protest from outside parties, a figure that’s now around 35 percent, Abbey said, adding that the program was hobbled by outdated technology and other woes.

Overall, EIA data show that aggregate U.S. crude oil production has been steadily rising.

The country produced 4.95 million barrels per day in 2008, rising to 5.36 million per day in 2009, 5.47 million in 2010 and 5.6 million last year, according to EIA, which is the Energy Department’s independent statistical arm.

EIA forecasted that total U.S production will grow again to 5.83 million barrels per day this year, and keep rising to reach 6.7 million in 2020.

There has, however, also been a recent drop in production from federal offshore leases after years of gains, which is likely a reflection of the months-long deepwater drilling freeze that followed the 2010 BP oil spill.

Production from federal leases in the Gulf was 1.15 million barrels per day in 2008, rising to 1.56 million in 2009 and about the same level in 2010, but declining to 1.32 million in 2011 and a projected 1.23 million this year, according to EIA.