A new $4,000 fee to process oil and natural-gas drilling permits for federal lands took the industry by surprise, according to Dave Ballard, president of the Montana Petroleum Association, Inc.

The fee was part of the Fiscal Year 2008 appropriations bill, signed into law Dec. 26 by President George Bush. Any new permit applications this fiscal year will be charged the $4,000 fee; it's a temporary measure and for it to continue it would have to be included in future budget bills.

"It was very much a surprise," Ballard said on Friday. "As I understand it, it was a late-night tag onto an energy bill. ... and I don't think anyone has had time to react."

The Bureau of Land Management processes drilling permit applications for all federal lands at an estimated cost of about $5,000 per permit, according to Tom Gorey, a BLM spokesperson in Washington, D.C. The BLM had been working on phasing in the $4,000 fee a few years ago, but that process was halted by Congress in 2005.

"This is a new direction from Congress ... and I'm not sure why," Gorey said. "The 2005 provision was essentially a prohibition on cost recovery, but the Bush Administration has been proposing and pushing for cost recovery for several years.

"So this is something we tried to accomplish through the rule making process and weren't able to."

In Montana, the BLM processed 178 applications during Fiscal Year 2006/07, which ended in October, according to Greg Albright with the BLM office in Billings. At $4,000 per application, that would have brought in $712,000.

Last year, more than 8,000 drilling applications were processed nationwide.

The money doesn't stay with the local offices; instead, it will be used to pay back a $25.5 million appropriation Congress made to the BLM to process applications, Gorey said.

"In this case, the fee doesn't go back to the BLM, so it's not money we had that we didn't have before," Gorey said.

Ballard was sorry to hear the money would go back to the federal treasury, since he was hoping the funds might be used to bolster the ranks of people processing applications. He said it's taken anywhere from three months to five years to get permits finalized.

Those numbers might drop this year, Albright said, because some drillers might consider moving oil and gas exploration efforts onto state or private lands, which aren't affected by the fee. Others may consider postponing seeking an application until next year, to see if the fee expires.

But that might not happen either, since applying for a permit typically is the final step in the process before actually drilling, and some businesses may be poised to move forward.

Ballard said that the $4,000 isn't a lot compared to the cost of drilling a typical well, but it can create hardships when added onto the other costs, like environmental, wildlife and archeological studies.

In addition, businesses also try to prepare for future drilling possibilities, so they often have multiple permit applications being processed.

Other petroleum industry organizations have criticized the fee, saying it increases costs without improving levels of service.

Reporter Eve Byron: 447-4076 or eve.byron@helenair.com