February 10, 2006

U.S. should share oil royalties with states -Shell

By Tom Doggett

WASHINGTON (Reuters) - The U.S. government should share
more of the royalties it collects from energy companies for
offshore oil and natural gas drilling with the states,
particularly to help rebuild hurricane-ravaged Louisiana, a top
Shell Oil executive said on Friday.

Gulf Coast states that have offshore drilling collect
royalties for oil and gas production in the their waters which
usually extend only a few miles from shore. Any exploration
beyond that is in federal waters, where the government collects
royalties that go to the general treasury to pay for various
programs benefiting the whole country.

Marvin Odum, who is responsible for Shell's energy
exploration and production businesses in the United States and
the rest of the North and South America, said he supports
efforts by the Gulf Coast states and local communities to get
some of the federal oil and gas revenue.

"It's certainly something that we think the government can
and should push through," Odum said in a interview with

Louisiana Gov. Kathleen Blanco said this week she wants the
government to give the state 50 percent of the federal offshore
royalties to help repair coastal wetlands left vulnerable to
hurricanes due to oil industry development.

While Odum supports revenue sharing, he would not comment
on how much federal royalties Louisiana or any other state
should get or what they should spend it on.

"That's between the states and the federal government,
that's what they need to work out," he said. "Whether or not
Louisiana would choose to use some of that money specifically
for hurricane restoration and recovery, obviously that's a
great need, that would be again a government decision."

Separately, Odum said "quite a bit" of the $15 billion that
Shell's parent company, Royal Dutch Shell Plc, plans to spend
worldwide this year for oil and gas exploration and production
will be targeted for the United States.

While that amount reflects higher drilling and exploration
costs, he said there will still be money for new investment.
"It's a significant increase in activity worldwide," he said.

In the United States, he said Shell will focus on drilling
for new oil in the deeper waters of the Gulf of Mexico and off
the Alaskan coast, and developing natural gas resources from
south Texas through the Rocky Mountain region.

The company will also invest in developing the vast oil
shale resources in the Western United States, which the
government estimates holds more than 1 trillion barrels of oil.

Oil shale is sedimentary rock containing organic material
that can be crushed and heated to produce oil. The process is a
costly one, and most U.S. oil shale projects were abandoned in
the early 1980s when crude prices collapsed.

However, with oil prices expected to average above $60 a
barrel in the next two years, oil shale development looks
profitable again.

Odum said the company will know in about five years whether
developing oil shale is commercially viable.

He said the government should open more offshore and
onshore areas to drilling to help reduce U.S. reliance on
foreign oil imports.

Odum declined to say whether President Bush's goal of
cutting U.S. Mideast oil imports by 75 percent in 2025 could be

However, he said even if more areas are opened to drilling
the United States will still be heavily dependent on foreign
suppliers to meet its energy needs over the next two decades.
"I think that's a reasonable case," he said.