Interior, oil industry cope with strained relationship

The Obama administration and the oil and gas industry have a reluctant symbiotic relationship.

The government reaps billions of dollars in revenue every year from companies producing oil and gas in federal waters and on federal lands. And the industry needs the government to ensure a timely, smooth permitting process to keep producing and reap their own billions of dollars in profits.

The relationship between the administration and the oil industry has never been stellar since President Obama took office.

But in the wake of the biggest oil spill in U.S. history in the Gulf of Mexico, the most extensive overhaul of the government's management of offshore oil and gas production ever, and Obama's budget proposal out this week, that relationship is more strained than ever.

Interior Secretary Ken Salazar says more money is vital to ensure offshore oil and gas drilling permits are issued in a timely manner. He wants that money to come largely from increased inspection fees. The industry and its proponents in Congress oppose that and are questioning whether the infusion is even necessary.

"I'm not convinced that they necessarily need more money," said Sen. Mark Begich, D-Alaska. "They have to show me what they're going to do with the money they've been getting so far."

In Obama's budget rollout on Monday, the Interior Department asked for $12.1 billion, about the same as past years. Of that, $358 million would go toward the reorganization of the former Minerals Management Service. The new Bureau of Ocean Energy, Management, Regulation and Enforcement is proposing to increase inspection fees from $10 million collected in 2010 to $65 million.

Several developments this week underscore the strained relationship. Louisiana's two senators, Republican David Vitter and Democrat Mary Landrieu, are holding up the nomination of Dan Ashe to be U.S. Fish and Wildlife Service director until deepwater permits are issued in the Gulf of Mexico. The industry-led Marine Well Containment Company announced Thursday that testing it just completed proves the industry can safely operate in deep water.

And a federal judge in Louisiana ruled Thursday that Interior must act within a month on five pending permit applications from one company drilling in the Gulf.

A spokeswoman for Interior said the department is reviewing that court decision. She noted more generally that no deepwater permits have been issued because companies have not proven in permit applications they have the capability to deal with a blowout and subsequent spill. Since June, when the new regulations were put in place, Interior says it has approved 32 shallow water permits for wells and has seven pending. There are six pending applications for deepwater wells.

In the Interior budget, Deputy Interior Secretary David Hayes said the department was actively hiring inspectors -- despite the lack of appropriated funds -- and they will continue the permitting process while inspectors are hired.

"We will not be waiting for these new inspectors to continue our permitting program," Hayes said. "We are continuing to issue permits in the Gulf and will continue to do so. We are looking forward to the additional ability to, in this budget through the additional fees, to have more funds to undertake the inspections."

Salazar has repeatedly said over the last several months since he started the reform efforts that without more money, his department would not be able to conduct the necessary reviews to issue permits in a timely manner. And on Monday, Salazar stressed that the industry should pay for its own inspections and is thus adding new fees to companies that drill oil and gas.

"I think it's important to know that what we're trying to drive with those budget numbers is the principle that oil and gas operators should be paying for the cost of these inspections," Salazar said Monday.

Key lawmakers don't disagree with that point. But they want the government to instead tap into the billions of dollars the government receives annually in royalties; in 2010, it was roughly $6 billion.

"I'm not arguing that point," House Natural Resources Committee Chairman Rep. Doc Hastings, R-Wash., told National Journal Daily this week. "The existing revenues are the way of paying for that."

The administration continues to indicate that is not an option.

Despite the sense of urgency coming from the administration, Congress and the industry on ensuring safe, productive and timely oil and gas drilling, gridlock remains, given that an agreement cannot be found on a way to pay for that all to happen simultaneously.