Congress seethes about the wrong OCS money issue

Bob Tippee

Congress is coming unhinged about federal revenue from offshore oil and gas activity.

A new Department of the Interior inspector general's (IG) report has invigorated congressional suspicion about royalty management by the Minerals Management Service.

The suspicion arose last January with disclosure that price thresholds designed to limit deepwater royalty relief were missing from Outer Continental Shelf leases awarded in 1998 and 1999. The new IG report criticized MMS procedures; MMS responded with a see-there announcement that it was billing BP for $32 million in underpayment of coalbed methane royalties, which had been under dispute (OGJ Online, Dec. 8, 2006).

Democrats assuming power next year aren't likely to ease the pressure. If they want a scandal, though, they'll be looking in the wrong place.

The IG report didn't say MMS let OCS royalties go unpaid; it cited procedures that might let that happen. The finding wouldn't have made news if Congress weren't already feverish over those missing price thresholds, which might not be the lapses they're made out to be. Whether MMS had authority to impose price limits in deepwater leases issued during 1996-2000 is an open question (OGJ, Dec. 4, 2006, p. 17).

Still, lawmakers from both parties are crusading for the supposedly lost royalty money. They say the missing thresholds have cost the Treasury $2 billion and estimate eventual losses at $10 billion. Their estimates ignore revenues that wouldn't exist from the leases in question without the incentive: bonus bids already paid and royalties payable when production exceeds volumetric thresholds.

If Congress really cared about government OCS receipts it would allow more leasing of the OCS.

At present, 85% of federal water off the Lower 48 and 3% off Alaska is unavailable for oil and gas leasing.

In the single fiscal year that ended Sept. 30, the government collected $7.6 billion from royalties, rents, and bonuses from the small part of the OCS that can be leased. Someone do the math.

The US surely has a problem where OCS revenue is concerned. But it has little to do with royalty collection and much to do with outrageously stingy leasing.

(Online Dec. 8, 2006; author's e-mail:

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