Today the Secretary of the Interior Ken Salazar spoke to oil executives and stated:
Just as your shareholders expect you to get a fair rate of return on your investments and to be wise stewards of your balance sheets, the American people are asking the same of us as we manage their resources
Bravo, Ken. I haven’t heard those words from a senior Interior Department official since Bruce Babbitt over eight years ago.
The goal of the Interior Department has always been two-fold: to promote responsible use of America’s resources, and realize fair value for the American taxpayer. But somehow the Bush Interior Department (enabled by legislation passed by a Republican-held Congress) focused almost exclusively on getting the minerals out of the ground without regard to revenue collection. The billions tucked underneath America’s soils and seabed in the form of oil and gas were seen as free money. This cash should go to the Treasury but often was given away to pet projects or foregone through royalty incentives. (Incentives have their place, especially to encourage companies to make risky investments, but I will address them at a later date)
Let’s take offshore drilling. All oil and gas in federal waters off the shores of the US are the property of the US. The government makes a deal with oil companies: they take roughly 88% of all the proceeds from the sale of the taxpayer’s oil they discover offshore and give the rest to the treasury. It works out well; the US provides stability through an open and fair bidding process and clear regulations to oil companies, and the firms, in turn, make large, often risky investments to help us get our minerals out of the ground. Compared to other countries, it is a model system.
But Salazar is right, from a fiscal perspective, it is important for the US government to review the royalties it charges, not just for oil and gas, but for all its resources. And it is a welcome change.