Lease bluster raises question about 'new cop'

Bob Tippee
Editor

"When the new Democratic Congress takes office in January, there will be a new cop on the beat to force every big oil company that is currently lining its pockets with taxpayer dollars [to] come back to the negotiating table."

That's from Rep. Ed Markey (D-Mass.), responding to a US Department of the Interior announcement that five oil and gas companies have agreed to pay royalties not required by leases they hold to deepwater acreage in the Gulf of Mexico (OGJ Online, Dec. 15, 2006).

"The Bush administration's Interior Department and the big oil and gas companies that have cheated taxpayers out of billions in revenues for drilling on public lands have run out of time," Markey said. "Their too little, too late efforts to recoup only a small percentage of the billions of dollars of oil and gas royalties that the American people are rightfully owed is pitiful."

What's pitiful is Markey's distortion of the issue.

On Dec. 14, Interior announced that BP PLC, ConocoPhillips, Marathon Oil Corp., Shell Oil Co., and Walter Oil & Gas Corp. had agreed to pay full royalties starting Oct. 1 on production from deepwater leases issued in 1998-99.

Unlike those issued in other years providing limited relief for deepwater production, the 1998-99 leases lack price thresholds that cancel the incentive when oil and gas prices are high.

The widespread assumption in Washington is that omission of the thresholds reflects bureaucratic oversight. So some companies have chosen to renegotiate their deepwater leases and forgo relief they acknowledge they don't need with commodity prices at current levels.

The companies haven't cheated taxpayers out of anything. According to the leases in question—contracts with the US government—the American people are in fact not owed the "billions of dollars" Markey claims.

What's more, the mistake, if that's what it was, happened when Markey's party ran the Executive Branch.

Renegotiation of the leases, on most of which production hasn't even begun, is a benign act by the leaseholders. Discrediting them for it is politically opportunistic and raises a disturbing question: Does January's new cop understand law?

(Online Dec. 15, 2006; author's e-mail: bobt@ogjonline.com)

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