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ENERGY BILL TRIES TO ANNUL QUESTION ON ROYALTY RELIEF

Bob Tippee
Editor

The energy bill passed by the House Jan. 18 tries to annul a question at the core of the year-long, price-threshold controversy about deepwater royalty relief.

Section 203 of the Clean Energy Act of 2007 "reaffirms" authority of the secretary of the interior to limit royalty relief when oil and gas prices are high.

But in the Deepwater Royalty Relief Act of 1995, Congress appears to have said something quite different for deepwater Gulf of Mexico leases awarded in the 5 years following Nov. 28, 1995.

The prevalent assumption in the controversy is that the Department of the Interior's Minerals Management Service failed to insert price thresholds in deepwater leases granted in 1998 and 1999.

But a close reading of the 1995 legislation makes you wonder if it was those years that MMS got right.

The act's discussion of price thresholds stipulates leases in existence and producing on Nov. 28, 1995, and determined by Interior to deserve relief. For nonproducing deepwater leases and those awarded during the next 5 years, the law mandates royalty relief and says nothing about price thresholds. And for those leases, the law sets volumetric limits to relief in a section presented as an exception to the clause—the one that the new House bill would reaffirm—authorizing the interior secretary to suspend royalties and condition suspensions on price levels.

Instead of price thresholds supposedly missing in 1998 and 1999, the controversy might more appropriately focus on whether MMS should have included thresholds in leases awarded in 1996, 1997, and 2000. The possibility that this is so has produced lawsuits.

What's interesting in all this is how little attention has befallen the issue of MMS's authority to include price thresholds in deepwater leases issued during 1995-2000.

Political opportunity oozes from a controversy involving money that oil companies didn't pay the government. That they had no legal commitment to pay anything easily can be ignored.

But where's the political opportunity in money that oil companies did pay that maybe never should have been collected?

It's a most inconvenient question, which the House bill, if enacted, quietly will eliminate.

(Online Feb. 2, 2007; author's e-mail: bobt@ogjonline.com)


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