Holders of deepwater Gulf of Mexico leases issued in 1998 and 1999 probably would be required to pay royalties starting with the date they agreed to amended terms, US Minerals Management Service Director Johnnie Burton said.
“We’re still talking, so I’m a little nervous getting too specific,” she said during an event sponsored by Platts. But, she added, collecting royalties from a period before a producer agreed to accept previously absent price thresholds would be legally difficult.
Burton said she also has ordered MMS employees to fully document steps taken to reach decisions with e-mails and written correspondence. The lack of such documentation in the 1998-99 period has made it harder for both MMS and the Department of the Interior’s inspector to conclusively determine why price thresholds were omitted from deepwater leases at that time.
“The central question is whether a decision was made to drop price thresholds or if it happened accidentally,” Burton said. “What the inspector general has told me so far is he hasn’t found any willful wrongdoing, no intentional effort to escape payments. There may have been faulty communications that resulted in a communications breakdown between two MMS divisions.”
She said the administration of President George W. Bush considers the situation a matter of contract law. “It feels that when a contract has been signed by two parties in good faith, that contract needs to be respected. If one of the parties finds the terms aren’t so good, they have to live with it,” she said.
Burton also said if Congress passes a bill barring 1998-99 leaseholders who don’t renegotiate terms from participating in future federal offshore leasing, “I think there would be a question of whether it constitutes a breach of contract and a company might decide to sue. That’s a difficult issue. But if we tell them that they can’t play in this park any more, where are they going to go? Probably to Africa or someplace else overseas, and I think the taxpayers would lose as a result.”
Burton also said the administration is anxious to see an Outer Continental Shelf leasing bill and hopes that the Senate and House can reconcile differences between their two measures. She said the US Bureau of Land Management might modify its planned lease sale at the National Petroleum Reserve-Alaska to omit parcels covered by a recent federal court ruling.