clock menu more-arrow no yes

Filed under:

BUSH TO CUT ROYALTY RATES ON NOT-SO-GOOD OIL WELLS

President Bush planned to announce Thursday he will drop royalty rates on older, poorly producing oil wells in Utah and other Western states, administration sources say.

Experts estimate the plan could create 43 more jobs in Utah, increase payrolls by $1 million a year and increase gross receipts by oil and related companies in the state by $6.1 million a year.Bush hopes his proposal will encourage oil well owners to use the savings to invest in new technology that could help increase production, or to open up old wells.

Bureau of Land Management Director Cy Jamison told reporters last November he planned to formally make that proposal in the Federal Register.

But administration sources told the Deseret News he had "to run it up the flagpole" by Interior Secretary Manuel Lujan and President Bush for approval. They said Bush liked the idea so much he planned a large announcement to stress that is now part of his energy strategy.

Interior Department spokesman Jay Sullivan confirmed Bush planned the announcement for Thursday afternoon.

Jamison told the Deseret News last November that the proposal would lead to an additional estimated $4 million worth of oil production in Utah a year.

"It will also increase state severance taxes . . . and increase the property value of wells (which increases the property taxes they pay to local governments)," Jamison said. "It will help us toward energy independence. It means a few less oil tankers coming to shore."

Jamison has said the royalty reduction would last for five years and apply only to wells that have produced fewer than 15 barrels a day on average during the past year, or which have closed down production. Such wells are often called "stripper wells."

The current royalty rate for most oil wells on BLM land is 12.5 percent of the value of the oil it produces monthly. Jamison has proposed stripper well rates that would vary on a sliding scale from just 1.3 percent for 1 barrel of production up to 11.7 percent for 14 barrels a day.

Jamison said the program would work so that a well that manages to increase production would still continue to pay the lower royalty based on its initial production during the five-year program on its total production.

"It should encourage independents to go in and increase production or open up old wells," he said.

It may also help companies such as National Parakleen Co., a business that has used bacteria in Utah oil wells to increase production.

It put bacteria in 136 oil wells near Altamont, Duchesne County, to produce secretions that dissolve troublesome paraffin wax underground into beneficial gasoline or kerosene. The germs' secretions also thin out thick oil in the area, making it easier to pump.

Company officials say it has helped increase production 374 percent in those wells and kept some open that otherwise would have been closed.