U.S. drops royalty hike plan for some drilling; taxpayers hit: study

By Patrick Rucker

WASHINGTON (Reuters) - U.S. taxpayers will forgo more than $1 billion in revenue in the next decade now that officials have dropped plans to increase royalty rates for drilling on federal land, a report released on Tuesday concluded.

Officials have for years considered boosting the royalty rate for onshore oil and gas development as a way to protect taxpayers' stake in a domestic energy boom.

But the U.S. Department of the Interior has lately decided to drop those plans, according to a report from the Government Accountability Office, the investigative arm of Congress.

"According to Interior officials, the department does not have enough information to determine how to adjust onshore royalty rates," the GAO said in a study of royalty collections on fossil fuels.

Senator Ron Wyden, an Oregon Democrat and chairman of the Senate Energy and Natural Resources Committee, requested the study.

Advances in drilling technology have unlocked vast fossil fuel deposits in North Dakota, east Texas and elsewhere in recent years, pushing domestic oil and gas production up sharply.

U.S. crude oil output is surging faster than expected and will touch a historic high by 2016, according to data released on Monday by the U.S. Energy Information Administration, part of the Department of Energy.

Drillers now pay a 12.5 percent royalty on oil and gas pulled from federal land. Since 2009, Interior officials have contemplated increasing the government's take to match global standards, according to the GAO report.

Officials last year drafted plans for an 18.75 percent royalty for onshore oil production but decided to put those plans on ice, according to the GAO report.

In Texas, the royalty rate is 25 percent.

President George W. Bush twice increased royalty rates for drilling in the Gulf of Mexico, and Ken Salazar, President Barack Obama's first Interior secretary, said in 2011 that a boost to onshore royalties was due.

In his 2014 budget proposal, Obama said "adjusting onshore royalty rates" was a priority.

About a third of U.S. oil and gas comes from federal land managed by the Interior Department, and its oversight of energy development has been singled out by the GAO among agencies most vulnerable to fraud, waste or abuse.

Current Interior Secretary Sally Jewell has said taxpayers must be protected in sales of fossil fuels that come from federal land.

An Interior Department official did not immediately respond to a request for comment.

(Reporting by Patrick Rucker; Editing by Lisa Von Ahn)

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