Where's the money worry in US bans on OCS leasing?

Bob Tippee

The US Congress deserves credit for its concern about those federal offshore oil and gas leases that lack price thresholds for deepwater royalty relief.

It's gratifying to see elected officials quiver with indignation over mistakes of governance. It's reassuring to watch them demand that public coffers not be denied a penny of their possible due.

Even more welcome in these matters, however, would be a measure of consistency.

For some reason, deepwater Outer Continental Shelf leases issued during 1998 and 1999 omitted oil and gas price limits on royalty relief. Production from those leases is coming on stream at a time when prices exceed price thresholds in leases granted in other years. Congress estimates the government will be denied $2 billion as a result.

The Department of the Interior, which manages OCS leasing through the Minerals Management Service, has drawn heavy, bipartisan fire for the lapse. It hardly eases the pressure that the best explanation so far has been a probable breakdown of communication.

It doesn't help, either, that it's an election year, when winning back some or all of that theoretically lost money can be made to look heroic. Indeed, lessees are negotiating possible compensation, although legalities and partner relationships make the task tougher than politicians make it appear. Leases are contracts. Companies signed them in good faith and, by all reports, have met their commitments.

Noteworthy in all this is sudden congressional worry about money from offshore oil and gas leasing. Commendable as it is, where's that worry in leasing exclusions covering the OCS off the East and West Coasts and in the Gulf of Mexico off Florida?

In fiscal 2005 alone, the MMS collected $6.3 billion from federal offshore leases—almost all from the 15% of the Lower 48 OCS that's available for lease. The rest is precluded from leasing by congressional and presidential action.

Without a test of the resource, there's no way to tell how much revenue the government forswears with its antileasing policies. But it's probably more than $2 billion.

So where's the indignation? As a mistake of governance, this one's more appalling than Interior's.

(Online Sept. 29, 2006; author's e-mail: bobt@ogjonline.com)

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