US Lawmakers Demand Oil Royalties

Two congressmen said Tuesday it is absurd for the Interior Department not to demand royalties for oil that was pumped under flawed drilling leases.

"The money belongs to the federal government and must be collected," Reps. Tom Davis, R-Va., and Darrell Issa, R-Calif., wrote in a letter to Interior Secretary Dirk Kempthorne.  Davis, chairman of the House Government Reform Committee, and Issa, who heads the panel's energy subcommittee, have been investigating circumstances surrounding a government mistake in leases issued in 1998-99 that allows oil companies to avoid royalty payments even if oil prices soar.

Leasing officials failed to include provisions that required royalty payments if oil or gas reached a certain threshold, one far exceeded by prices in recent years.  About half of the more than 1,000 leases which have all involving deep-water exploration in the Gulf of Mexico already have expired and many of the rest are likely to expire in the next few years without an oil or gas discovery.  But the Interior Department says at least 19 have had oil or gas production and 25 have had discoveries.  The Interior Department is trying to negotiate changes in the leases so that royalty payments would be required in future production under the 1998-99 leases. But it is not pursuing royalties from oil already taken.

Last week, Acting Assistant Secretary Johnnie Burton said it would be very difficult to recoup past royalties since those revenues already have been widely distributed among various partners in the leases.  In addition, she said, she has limited leverage on the companies who claim the leases amount to valid contracts.  She estimated that about $1.3 billion in royalties has already been lost. The congressmen said the amount could be as much as $2 billion.  "This is absurd," Davis and Issa wrote Kempthorne of the claim by Burton that she had no bargaining power to recoup the back royalty payments.

Burton provided the House committee with a list of 59 companies and subsidiaries that have interest in the 1998-99 leases.  She identified seven companies that have been in discussions with Minerals Management Service (MMS) to rework the flawed contracts: BP, Chevron, Devon Energy, Dominion Exploration & Production, Exxon Mobil, Shell Oil and Walter Oil & Gas.  Burton also provided the names of a dozen other companies that responded to a letter seeking to renegotiate the flawed contracts. She indicated other companies were involved in discussions, but that they had not given permission to be identified.

That brought a sharp response from Davis and Issa, who demanded that the department provide the basis for the decision to withhold any of the company names.  Presumably the rest of the 59 companies have not responded or do not want to be so identified.  Among those companies are several with significant ownership in the flawed leases, including Kerr McGee Oil & Gas, which has an interest in 93 of the flawed leases and Statoil Gulf Of Mexico, with has ownership in 63 leases.