The U.S. War On Oil Companies Watch: Draft legislation on Federal leases in the House now:

• Minimum royalty would be increased 50% to 18.75%. This would be applied to new and existing leases.
• RIK (royalty in kind) payments would be ended. RIK allowed companies to pay a portion of their royalties to the Feds in the form of actual barrels.
• Federal lease holding times (the time you have until you have to drill it up and get it under production) would be halved from 10 to 5 years.
• The Obama Administration added a clause to existing leases, adding a charge of $4 per acre on non-producing leases and rising to $10 per acre in year ten.  These are leases that energy companies already bid on and paid money to the federal government for. Technically, the Feds are not just throwing out the old contract in favor of a new one, they are amending the old one.

• ZComment: Speechless. Ok, not quite. So, the idea here is to jack up the cost of production and rush decisions on things like deepwater developments. The administration has said it does not believe raising royalty rates will have a significant impact on U.S. production. Does it think this is going to increase production? Setting aside the increased royalty burden for a moment, the acreage charge is, for lack of a better word, bogus. E&Ps and Majors hold large portfolios of leases in the Gulf of Mexico. The decision to drill or not drill a lease depends on a variety of factors including oil and gas prices and service costs as well as science. The companies know that not all of their leases will get drilled but again, it is a portfolio and not all items in a portfolio are going to be winners. These leases often go at the Federal lease sales for millions of dollars, sometimes 10s of millions for a contested block.  For the government to simply come along and change the deal now, when times are tight, only reduces the ability of the companies to invest in oil and gas projects. To the government, I can only say "Good luck at the next lease sale."

In Today’s Post:

1. Holdings Watch
2. Commodity Watch
3. Natural Gas Inventory Preview
4. Oil Inventory Preview
5. Stuff We Care About Today - WRES
6. Odds & Ends

Holdings Watch

• $10KP: $25,800 / 58% cash /  the Wiki Holdings page is updated. 

• PXD -  Added a July $30 Call position (5) (PXDGF) for $1.05 with stock at about $26. Added (10) more of the July $30 Calls for $0.80 with the stock at $25.25 later in the day.

Commodity Watch

Crude oil rose a buck to close at $63.45 yesterday, another 6 month high, on OPEC meeting eve, despite a firm dollar and a sagging equity market. This morning crude is trading slightly higher despite a stronger dollar and in the wake of the lack of change in production by OPEC.

The July natural gas contract which takes over as the front month contract today closed flat at $3.62 yesterday. See storage thoughts next section.