US senators press Bush on deepwater royalties

Forty-three US senators asked President Bush what steps the administration will take to recover several billion dollars of apparently lost federal deepwater offshore royalties.

Nick Snow
Washington Editor

WASHINGTON, DC, Nov. 9 -- Forty-three US senators, including five Republicans and one independent, asked US President George W. Bush what steps the administration will take to recover several billion dollars of apparently lost federal deepwater offshore royalties.

They sent the Nov. 8 letter following an Oct. 30 ruling by a federal district court in Louisiana that lessees on the US Outer Continental Shelf in the Gulf of Mexico do not need to pay royalties despite oil prices approaching $100/bbl.

The lawsuit, Kerr-McGee Oil & Gas Corp. vs. Allred, represents "an apparently successful attempt by the oil industry to overturn the requirement in law that they pay royalties when oil and gas prices are above certain threshold levels," the letter said.

The requirement was part of the 1995 Deepwater Royalty Relief Act, the letter continued. "Despite the clear intent of the law's chief sponsors, and the understanding they communicated to Congress that royalty-free production would not occur under the act when prices are high, the court has interpreted the law to require that oil and gas companies be given a set amount of royalty-free oil and gas without regard to price," it said.

The letter noted that the Government Accountability Office estimated last year that such a ruling could cost the US Treasury $60 billion in revenue. "That was when oil prices were about $60/bbl. At today's prices, the potential revenue loss could be even greater," it said. More than $1 billion of royalties which have been paid already would have to be refunded, it added.

"We must contemplate the real possibility that the 1995 act will be implemented in a way Congress never intended and in a way that would shock the sensibilities of most Americans," the letter said. It suggested that giving billions of dollars to producers when consumers are paying dramatically more for oil and gas "is not an acceptable outcome."

Senators signing the letter included Majority Leader Harry M. Reid (D-Nev.), Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM), Finance Committee Chairman Max Baucus (D-Mont.), Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.), Bernard Sanders (I-Vt.) and Republicans Norm Coleman (Minn.), Susan F. Collins (Me.), Charles E. Grassley (R-Iowa), Olympia Snowe (Me.), and John Thune (SD).

Contact Nick Snow at nicks@pennwell.com.

More in General Interest