Lawmakers say agency should collect as much as $2 billion from companies
Reuters News Service
WASHINGTON – 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 — 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, who also heads the Minerals Management Service that handles offshore oil lease sales and collects the royalty revenues, 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 MMS to rework the flawed contracts: BP PLC, Chevron Corp., Devon Energy Corp., Dominion Exploration & Production Inc., Exxon Mobil Corp., Shell Oil Co. and Walter Oil & Gas Corp.
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 Corp., which has an interest in 93 of the flawed leases including four producing and two where there have been discoveries. Kerr McGee also is in court challenging the government’s contention that royalties should be paid on any of the deep-water leases.
Statoil Gulf Of Mexico LLC, a subsidiary of the Norwegian oil company, with has ownership in 63 leases including one producing and six where there have been discoveries.
Of the companies identified as taking part in discussions with MMS, Devon Energy has an interest in 125 leases (three producing, eight with discoveries); Exxon Mobil, 99 leases (one with a discovery); Chevron, 56 leases (one producing, nine with discoveries) BP, 47 leases (one producing, five with discoveries) Shell, 46 leases (thre producing, three with discoveries) Dominion, 16 leases (three producing, two with discoveries) and Walter Oil & Gas, three leases (one producing, one with a discovery).
Other companies such as ConnocoPhillips Co., have significant ownership in 1998-99 leases, but none is producing or has discoveries. With the leases likely to expire soon, they would not be subject to royalties in any cases.
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