WASHINGTON, DC, July 5 -- Kerr-McGee Corp. and the US Department of the Interior agreed June 30 to mediate their disagreement over deepwater royalty relief. They also agreed to ask a federal court to postpone entry of a scheduling order in Kerr-McGee's lawsuit against DOI while mediation is under way.
The Oklahoma City independent sued the agency in March over an order from the department's Minerals Management Service to pay royalties on oil and gas produced from deepwater Gulf of Mexico leases between 1996 and 2000 when prices exceed certain thresholds (OGJ Online, June 22, 2006).
Rep. Darrell E. Issa (R-Calif.), who chairs the House Government Reform Committee's energy and resources subcommittee, said, "I am pleased to see that Kerr-McGee�has now expressed a desire to sit down and reach a resolution that protects the sanctity of the contracts they signed and corrects a clear error in the language of those agreements."
He referred to the omission of price thresholds from federal offshore leases covered by deepwater royalty relief during fiscal 1998 and 1999. MMS has said this was an error, but Greg Pilcher, senior vice-president, general counsel, and corporate secretary at Kerr-McGee, said the company is not certain that omitting the price thresholds during those years was a mistake.
He testified at a June 21 hearing of Issa's subcommittee that Kerr-McGee believes the Deep Water Royalty Relief Act's language and history did not give Interior and MMS authority to impose price triggers during the first 5 years of deepwater leasing, including 1998 and 1999.
Following the hearing, Issa said representatives of Royal Dutch Shell PLC, ConocoPhillips, and Chevron Corp. said their companies were open to renegotiating terms for their leases during the 2-year period.
Senate Energy and Natural Resources Committee Chairman Pete V. Domenici (D-NM) said June 29 that the Senate Appropriations Committee, on which he sits, passed his amendment to DOI's fiscal 2007 budget requiring the federal agency to renegotiate leases where no royalties are being paid.
The committee also approved an amendment proposed by Sen. Diane Feinstein (D-Calif.) that would bar oil companies refusing to renegotiate such 1998 and 1999 leases from bidding on future federal oil and gas leases.
Contact Nick Snow at [email protected].