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Statement on U.S. Government's Decision to Raise Offshore Royalty Rates

January 9, 2007 The Independent Petroleum Association of America (IPAA) today released the following statement in response to Interior Secretary Dirk Kempthorne's announcement that he has increased the royalty rate for most new offshore deepwater federal oil and gas leases to 16.7 percent (1/6th).

FROM BARRY RUSSELL, PRESIDENT, INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

IPAA represents the companies that drill 90 percent of the nation's oil and natural gas wells. These companies also hold 90 percent of the leases in the Gulf of Mexico.

"IPAA is urging Congress and the Administration to avoid making decisions based on political reaction and look instead at the policy implications of its choices. The appropriate test of oil and natural gas related energy legislation should be the implications on American oil and natural gas production.

"By raising the royalty rates on new offshore deepwater federal oil and gas leases, the Administration is steering capital away from future American energy investment and increasing our dependence on foreign energy sources. Independents hold 80 percent of the Gulf of Mexico shallow water leases and 75 percent of deepwater leases.

"In evaluating deep water projects, Independent producers balance the potential for success against the cost – including lease bonus payments and royalties. Increasing royalty rates will discourage high bonus payments and potentially discourage many American energy projects. Higher royalty rates almost always lead to less resources being developed.

"Oil and natural gas are essential components of America's energy supply for the foreseeable future. Policies that reduce investments in American oil and gas production are a threat to American energy security.

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IPAA is the national trade association representing oil and natural gas producers that drill 90 percent of the nation's oil and natural gas wells. These companies account for 68 percent of America's oil production and 82 percent of its natural gas production.