WATCHING GOVERNMENT: A deepwater royalty storm

Nov. 26, 2007
Many members of Congress already were upset over the absence of price thresholds from federal deepwater leases issued in 1998 and 1999 under which royalties were not paid.

Many members of Congress already were upset over the absence of price thresholds from federal deepwater leases issued in 1998 and 1999 under which royalties were not paid. Then a federal district court in Louisiana triggered a fresh political storm.

The court ruled in the Kerr-McGee Corp. lawsuit challenging deepwater royalties on Oct. 30 that passage of the Outer Continental Shelf Deepwater Royalty Relief Act in 1995 eliminated the US Department of the Interior’s discretion to enact a price threshold requirement that applies to volumes below the minimum volume of royalty-free production.

Officials from the administration of President George W. Bush immediately disagreed. “If the court’s interpretation of Congress’s action in 1995 is correct, certain leaseholders will be allowed to produce massive amounts...without paying royalties to the United States without regard to the price...perhaps amounting to one of the biggest congressional giveaways of federal resources in modern history,” DOI Communications Director Tina Kreisher said.

A $60 billion matter

“The ball is in the administration’s court,” US Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) told reporters at a Nov. 5 briefing. Three days later, he and 42 other senators (including five Republicans and one independent) wrote Bush asking what steps the administration planned to take to recover the $60 billion that the Government Accountability Office estimated would be lost if the ruling stands.

US House members also didn’t like the court’s action. Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) said in a Nov. 6 letter to Bush that the ruling could result in “an unconscionable giveaway to the oil and gas companies on behalf of the American taxpayer.”

He urged the administration to appeal and for Bush to withdraw his veto threat over the language in House energy bills. “With last week’s court decision, and oil prices now exceeding $90/bbl, I hope you will reconsider this stance, and urge swift passage of an energy bill containing these necessary provisions,” he wrote.

Cites CRS study

Rep. Edward J. Markey (D-Mass.), who chairs the House Select Committee on Energy Independence and Global Warming and is a Natural Resources Committee member, said on Nov. 9 that a new Congressional Research Service study concluded that language in the energy bill covers the 1996-2000 Gulf of Mexico deepwater leases.

He said that even if oil company lawsuits are upheld, the CRS study said the bill’s language would make the tracts “covered leases,” effectively requiring the leaseholders to either renegotiate or lose the right to bid on future leases.

All of this occurred before Congress recessed for Thanksgiving and members returned to their districts as retail gasoline prices broke back through the $3/gal barrier and crude oil prices remained above $90/bbl.