Industry won a major victory recently when the US Senate voted to block the US Minerals Management Service's controversial royalty management rule for another year (OGJ, Oct. 4, 1999, p. 40). But it took a public relations whipping in the process.
Last week, the American Petroleum Institute and the Independent Petroleum Association of America jumped to the counterattack. API wrote President Bill Clinton, urging him to intervene and order MMS to repropose the rule-and basically start again from scratch. That would effectively delay the issue until the next administration takes the reins.
API Pres. Red Cavaney said the oil industry agrees that the old system of valuing federal royalty production on the basis of posted prices should be scrapped. He said industry's goal is to help MMS implement a system that is simple to administer, provides certainty to royalty payers, and is fair both to oil companies and the federal government.
Failed talks
Cavaney said, "The Department of the Interior's original proposal was highly flawed and indicated a lack of understanding of the underlying legal responsibilities of the government. Through our interaction over almost 3 years since the rule was proposed, it remains abundantly clear that DOI either does not understand the problem or has disregarded the legitimate concerns expressed by our industry and others.
"MMS has, time after time, frustrated efforts to arrive at a compromise that is fair to the government and the industry. The reams of information we have provided that agency...have resulted in little feedback from MMS indicating an understanding of the issues at hand."
He said oil companies' leases with the government require them to pay royalties based on the value of production at the lease, but MMS is trying to establish royalty values at points downstream.
Meanwhile, House and Senate conferees were debating last week whether to keep the 1-year royalty rule moratorium in the final DOI appropriations bill. Retention seemed likely.
IPAA's view
Independents also are frustrated.
George Yates, IPAA chairman and president of Harvey E. Yates Co., said MMS apparently thinks it, not Congress, has the power to make new royalty laws. He said producers are obligated to pay specific royalty percentages, but MMS wants to increase its revenues by assessing value not at the wellhead but after producers have paid for additional oil and gas processing and moved the production partway or all the way to market.
"IPAA strongly supports fair valuation of oil and gas so that the federal government receives all the revenues it is owed. The proposed rule-making does not meet those criteria."
Yates scoffed at the idea that the delay of the royalty rule is costing the government money. "Royalties will continue to be collected-every single dollar that is owed. In addition, government auditors still will be inspecting the books of oil producers to ensure that those royalty payments are being made."
