US GAO report backs up Interior oil, gas royalty arguments

Washington (Platts)--24Jul2006

The US Interior Department's reasoning on why its collection of royalties
from oil and natural gas leases has tapered off in recent years as prices have
soared has been backed up by a Government Accountability Office report.

GAO began probing the issue in January, at the request of 24
lawmakers--mostly Senate Democrats--following a series of New York Times
stories that drew attention to the matter.

GAO said that royalty revenues rose only 8% from 2001 through 2005, at
the same time gas prices increased 30% and oil prices 90%.

But this disparity can be explained by a host of factors, said GAO,
including: a decline in gas production in the shallow waters of the Gulf of
Mexico; transfers of oil to the Strategic Petroleum Reserve; and losses
sustained as a result of hurricanes in the Gulf.

The Times blamed the discrepancy on gas producers reporting higher market
prices to their shareholders than they do to Interior's Minerals Management
Service.

GAO predicted royalty collections could climb in the future as deepwater
production in the Gulf increases. At the same time, GAO said, oil production
subject to royalty relief provisions is expected to grow.

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