The Interior Department said Tuesday that it is planning to overhaul the way it calculates royalties that energy companies owe the federal government from production of oil and gas on federal lands and offshore.

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According to Interior Secretary Ken Salazar, the department is considering a proposal to calculate royalties using a market price based on the geography of a region.

The change would streamline the current royalty process, in which the department conducts complicated analyses to determine the royalties owed to the government. In a statement released, the department said:

“These changes could dramatically improve compliance and reduce administrative costs for industry and the government, as well as better ensure proper royalty valuation by creating a more transparent royalty calculation method”

More than $9 billion was collected by Interior from energy-related activities in fiscal year 2010.

Salazar said the new effort, which would be revenue neutral and reportedly not change existing royalty rates, is aimed at providing “cost savings to industry while ensuring the American taxpayer is properly compensated for the use of our Nation’s resources.”
 
What is termed an “advance notice of proposed rulemaking” will be published within a week, according to the Department. A 60-day public comment period will follow after that.

More details about the proposal were provided by David Hayes, deputy secretary at the Interior Department, during a House Oversight and Government Reform Committee hearing yesterday. He said the current way royalties are collected, using case-by-case analysis, has “a lot more potential for expense by the industry and the agency and for potential abuse.”