Royalty rule revival

Patrick Crow
Washington, D.C.
[email protected]

Just before leaving office last month, Minerals Management Service Director Cynthia Quarterman made a last-ditch attempt to save the complex royalty payment rule she had been pushing for 3 years.

Producers say the rule is so unworkable it reminds them of the government's 1970s regulations setting myriad prices for crude, products, and natural gas. Those were regulatory nightmares; some of the oil price refund cases still are pending at the Department of Energy.

MMS revised its royalty rule several times to remove some of the flaws, but producers say it still is far from workable.

Last fall, oil-state congressional representatives blocked MMS from issuing the royalty rule until June 1 and urged it to negotiate further with industry. MMS has not.

As she left office, Quarterman wrote small producers, trying to convince them the rule would not change their royalty obligations for arm's-length sales of federal crude.

They weren't fooled. The Independent Petroleum Association of America responded that the rule would, indeed, have major impacts.

Babbitt's hotseat

In recent weeks, Interior Sec. Bruce Babbitt has been besieged from all quarters regarding the issue.

Energy Sec. Bill Richardson has discussed the rule with Babbitt. Oil associations renewed their offers to work on a rule to ensure "American taxpayers receive accurate royalty payments in a regulatory environment that is certain."

At a Mar. 2 Senate hearing, oil state senators verbally pounded Babbitt, telling him the regulation is a prime example of what government should not be doing at a time of record low oil prices.

They warned the Senate would extend the moratorium if talks were not reopened. Rep. Ralph Regula (R-Ohio), chairman of the House Interior appropriations subcommittee, told Babbitt much the same thing in a letter.

And Rep. Martin Frost (D-Tex.) and other producing-state Democrats urged Babbitt to reconsider.

Rule reopened

On Mar. 4, Babbitt capitulated and reopened the comment period for 30 days to accept "new, not previously considered ideas."

He explained, "A number of our constituents have appealed to us for the opportunity to submit new ideas to resolve remaining concerns surrounding the oil rule."

This week, MMS is expected to announce workshops with the industry in late March and early April. They will probably be held in Houston, Albuquerque, and Washington, D.C.

Industry representatives hope MMS will allow give-and-take discussions, rather than the rigid question-and-answer format of earlier MMS workshops.

Despite Babbitt's action, a few hours later, the Senate appropriations committee voted to extend the moratorium to Oct. 1. The House of Representatives is likely to concur later.

Oil lobbyists wonder whether Babbitt was making a last-ditch maneuver to dodge a continuation of the moratorium, or if he is serious about negotiations. Only time will tell.

But they note that MMS officials have been more relaxed and cooperative on the issue following Quarterman's departure.