GAO: Deepwater royalty relief impact hard to pin down

Deepwater royalty relief will cost the US government billions of dollars, but uncertainty about prices and production levels makes precise estimates impossible at this time, the Government Accountability Office said in an Apr. 12 report.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Apr. 16 -- Deepwater royalty relief will cost the US government billions of dollars, but uncertainty about prices and production levels makes precise estimates impossible at this time, the Government Accountability Office said in an Apr. 12 report.

GAO nevertheless found that the US Minerals Management Service produced reasonable estimates of future potential royalties that were lost because deepwater leases in the Gulf of Mexico in 1998-99 were issued without price thresholds. It said MMS estimated in February that the amounts lost could reach $6.4-9.8 billion in addition to the $1 billion that has already been lost.

GAO saw "considerably more uncertainty" regarding the amount of lease revenues potentially lost from leases issued in 1996, 1997, and 2000 because of Kerr-McGee's challenge of the US Interior Dept. agency's authority to include price thresholds.

"Although MMS has not yet updated its 2004 estimate of the future potential royalty losses on the leases at issue in the Kerr-McGee suit, it is clear that such an update could differ significantly from its earlier estimate because of likely changes to price and production assumptions," the congressional watchdog service said.

Congress will need more current information, it continued. GAO recommended that MMS report the status of leases and annual amount of royalties lost from the 1998-99 deepwater leases until the issue is resolved. GAO also suggested that MMS supply similar estimates for leases involved in the Kerr-McGee lawsuit to Congress (OGJ Online, July 5, 2006).

GAO prepared the report in response to a January 2006 request from US Sen. Jeff Bingaman (D-NM), then chief minority member and now chairman of the Energy and Natural Resources Committee. "My fundamental goal in moving ahead on this serious matter is to recover the lost funds. I plan to carefully review the report and will soon introduce legislation that builds on GAO's recommendations," Bingaman said Apr. 12.

Contact Nick Snow at nsnow@cox.net.

More in General Interest