Monday, January 15, 2007

US increase Oil and Gas Royalties

A very interesting announcement came out regarding US legislation. Apparently, the Interior Secretary is able to raise the royalty rate of oil and gas leases. And guess what just happened ? In January 2007 the US Interior Secretary, Dick Kempthorne, has increased most of the deepwater oil and gas leases of US companies from 12.5 per cent to 16.7 per cent. Over 20 years, the US Minerals Management Service estimates the new royalty rates for offshore leases to be worth an extra $US4.5 billion. Although Woodside Petroleum Limited (ASX:WPL) and BHP Billiton Limited (ASX:BHP) have declined to comment on the new Gulf of Mexico arrangements in 2007, it is believed that they will examine the US relief legislation closely for
potential impact.

This is a risk that I (and probably a lot of other investors ) was not aware of in regard to these companies. It is something to consider that around 4% of their profit in the region can be taken away with this royalty increase. In some cases this could bring margins down to unacceptable
levels espeically if it happens for a few years running. At the moment the 4% royalty increase should not dramtically hurt either company but it is something to lock away and watch out for in the future.

Good Luck Investing.

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