US congressional leaders say Gulf royalty deals are inadequate

Washington (Platts)--15Dec2006

Leaders of US House and Senate committee Friday criticized as inadequate
new agreements between the Department of Interior and five oil and natural gas
companies meant to fix flawed Gulf of Mexico leases.

"The devil is in the details," Representative Nick Rahall, Democrat-West
Virginia, said of the deals announced Thursday, under which BP,
ConocoPhillips, Marathon Oil, Shell and Walter Oil and Gas will pay royalties
on production beginning October 1, 2006.

Interior left out of Gulf leases issued in 1998 and 1999 customary
provisions requiring companies to pay royalties when oil and gas prices rose
to certain levels. The leases otherwise suspend the companies' royalty
obligations to encourage them to develop deepwater reserves.

"While the Interior Department claims that it is actively recouping these
lost royalty payments, the fact is that this agreement represents a miniscule
percentage of the billions of dollars in oil and gas payments that are owed to
the Federal Treasury," said Rahall, who will chair the House Resources
Committee in the 110th Congress. "Clearly, this problem has not been fixed
fully and completely for the American taxpayer. I am committed to conducting
vigorous oversight of this issue in the coming months."

Republican Representatives Tom Davis of Virginia and Darrell Issa of
California, the former chairmen of the House Government Reform Committee and
the panel's Energy and Resources Subcommittee, respectively, also raised
concerns.

"More than 50 companies have not reached agreement or are not even
negotiating with Interior," they said. "More importantly, these agreements
only address royalties from production beginning October 1, 2006."

The top Democrat on the Senate Energy and Natural Resources Committee,
Jeff Bingaman of New Mexico, "wants to see the American taxpayer made whole,"
said his spokesman, Bill Wicker. "This is a first step, but there's still much
to be done."

--Bill Loveless, bill_loveless@platts.com

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