High oil prices to increase royalties, OMB says

GALLUP, Jan. 10, 2008

As prices for a barrel of oil approach $100 a barrel for the first time ever, Navajo tribal officials are seeing green.

Members of the council's Budget and Finance Committee Tuesday pondered the possibility of $100 barrels of oil and asked the controller as well as officials for the Minerals Department to come up with projections on how much more the tribe will get in oil royalties because of the higher prices.

Oil prices, which averaged about $68 a barrel this time last year, were hovering at the beginning of this week at a level of about $97.69 a barrel. The latest increases were being blamed on continuing violence in Nigeria, the eighth largest producer of oil.

Dominic Beyal, director of the tribe's Office of Management and Budget, said the increased costs for oil will likely mean millions of dollars more for the tribal treasury this year.

Exactly how much more is anyone's guess right now since no figures have been developed but if last year's royalties were based on the price of oil at somewhere between $68 and $75 a barrel, it would mean that the tribe will be getting 25 percent more, assuming that the price stays this high.

Beyal said the B&F committee members wanted to see how these new prices would affect revenue projections for this year. If the increase is significant, the committee wants to know this so it can budget more for projects or budget requests.

No deadline was given for the new figures, Beyal said.

While news of increased oil prices is good news for the tribal treasury, it's not good news for tribal members since the higher crude prices will eventually mean higher prices at the gas pump and most Navajos are already hurting from $3-a-gallon gas prices.

The U.S. Energy Information Administration, in its latest projections, says barrel prices above $90 are expected to be around for the next year or so because of fears over Iraq and Iran as well as violence in other oil producing countries.

What this means at the pump, they say, is that motorists can expect gas prices to average more than $3 a gallon through 2008 and 2009 with the prices peaking this spring at about $3.50 a gallon.

Since reservation prices are higher than the prices charged off the reservation, this would project to prices on the reservation averaging $3.10 a gallon to $3.50 a gallon, with the peaks hitting above $4 a gallon this spring in some of the more remote communities.

This would pertain to all gas stations, including those owned by the Navajo Oil and Gas Enterprise, which charges the market rate even though it gets a major break since it doesn't have to pay state taxes.

NOGE officials in the past have been asked why they can't share some of this windfall by reducing gas prices at the pump, but they said the prices that the enterprises charges at its gas pumps have no relation to what the tribe receives in royalties.

The tribe expects the enterprise to make a profit so that it can purchase more stations and generate more revenue, one former enterprise director stated.