The U.S. Minerals Management Service's proposed rule to ensure that it gets full and fair royalties from oil producers has fired up the underpayment controversy again.
The rule would reduce the government's reliance on prices posted by oil companies and seek other methods to determine fair market value of crude produced from federal lands (OGJ, Jan. 27, 1997, p. 36).
The National Association of Royalty Owners, fearing that the federal royalty-setting method will be carried over into the private sector, warned that the plan could lead to chaos among small producers.
James Stafford, NARO president, said the MMS proposal "doesn't seem to take into account the geographical logistics of production or quality of the commodity and would seem the least workable of possible methods.
"It would seem to lump all production into one marketing pricing basket despite regional production variances."
Stafford, who said his membership wants royalty reform, explained underpayments and overpayments are the result of today's complicated pricing system, which can have more than 200 variables.
Support and criticism
Rep. Carolyn Maloney (D-N.Y.), who has been pressing for royalty payment reform, praised the proposed rule: "MMS is finally turning its ship around to collect the correct royalty from these oil companies.
"Using the current guidelines, the oil companies have easily buried the already understaffed royalty management program audit teams in a maze of company trading transactions. The oil companies have also used legal roadblocks and endless appeals to prevent the release of their affiliates' records."
But she criticized recent MMS settlements with oil companies to resolve alleged royalty underpayments in California. The California cases had prompted the MMS to revise its royalty rules (OGJ, Oct. 28, 1996, p. 19).
Maloney charged MMS negotiated settlements in 1993-94 with Exxon and Chevron that prevented the government from collecting $194 million in disputed royalty payments. "How can you neglect to negotiate $200 million?" she asked.
Maloney also said MMS is required to get Justice Department approval of settlements totaling more than $100,000.
"I am surprised that MMS held these secret meetings with large oil companies to resolve huge royalty disputes without the proper authorization. I know Sec. (Bruce) Babbitt. He would have wanted to review settlements of this size."
She plans to introduce bills requiring the Interior Secretary to approve settlements exceeding $2 million and moving the royalty collection effort from Interior to the Treasury Department.
MMS replied that Justice had signed off on the Chevron case but had no comment regarding the Exxon case. MMS is replying to Maloney in writing in a few days.
More events
MMS also plans to hold a press conference with Sen. Barbara Boxer (D-Calif.) to discuss the California collection cases.
Boxer has become interested because some of the contested royalties MMS collects will be rebated to the state.
The agency also will be holding public hearings on the proposed rule in Denver, Houston, and California within the next 2 months. Those are likely to be more interesting than the usual pro forma, sparsely attended meetings.
Congressional aides said hearings are likely this spring, too, and predicted committees would be watching the issue throughout the 105th Congress.
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