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Royalty rates hurt energy production

January 12, 2007

Re "Alaskan bay may see new drilling," Jan. 10

The Bush administration's decision to lift oil and natural gas drilling bans in areas of the Gulf of Mexico and Bristol Bay, Alaska, is a step in the right direction to improving American energy security. But the administration is simultaneously sending a mixed message by raising the royalty rates on new deep-water federal oil and gas leases -- effectively steering capital away from future American energy investment and increasing our dependence on foreign energy sources.

In evaluating deep-water projects, independent producers perform a cost-benefit analysis, factoring in lease bonus payments and royalties. Under the administration's proposed increases, royalty rates would discourage high bonus payments and potentially discourage many American energy projects. Higher royalty rates almost always lead to fewer resources being developed. Policies that reduce investments in American oil and gas production are a threat to American energy security.

BARRY RUSSELL

President, Independent

Petroleum Assn. of America

Washington

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