Royalty summit

A tentative July 9 meeting between oil company executives and Interior Department officials could defuse the bitter fight between industry and the Minerals Management Service on royalty policy. About eight CEOs from large, medium, and small oil companies are due to meet with Interior Assistant Sec. Bob Armstrong and MMS Director Cynthia Quarterman.

July 6, 1998

3 min read

Patrick Crow
Washington, D.C.
[email protected]

A tentative July 9 meeting between oil company executives and Interior Department officials could defuse the bitter fight between industry and the Minerals Management Service on royalty policy.

About eight CEOs from large, medium, and small oil companies are due to meet with Interior Assistant Sec. Bob Armstrong and MMS Director Cynthia Quarterman.

MMS has proposed a rule for valuing royalties owed from federal production that industry groups say is unworkable. They have countered with a plan for the government to physically take and sell its royalty oil, rather than take the value in cash. MMS says that plan is unworkable.

Oil state senators have blocked MMS from issuing its royalty rule until after Oct. 1, and are trying to delay it until Oct. 1, 1999.

Meanwhile, industry is pushing royalty in-kind legislation in Congress, but it is unlikely to be passed this session (OGJ, June 22, 1998, p. 23).

Since the royalty rule will be needed even if RIK were passed, Sen. John Breaux (D-La.)-with the help of other oil-state senators-have proposed the summit.

Prospects

Red Cavaney, American Petroleum Institute president, said, "We want to see if we can increase the understanding and dialogue between the two entities, which would ultimately result in a better, fairer rule being promulgated at the end of the day."

Cavaney said industry has worked to give MMS materials and data "we thought were convincing" that the pending oil valuation rule would not work.

"But when we look at the proposed rule and the (MMS) pronouncements related to that, we see little evidence of any of our input finding its way into the work product, and we see comments and claims made that clearly indicate to us they didn't understand some of the things that were being proposed."

Although the summit would be aimed at fixing the pending royalty rule, Cavaney said industry still remains "almost 100%" behind an RIK program.

"We still think that RIK is the answer, because it would be significantly easier for everybody to administer, would be significantly more transparent than any other proposal before us, and it would remove all those offline costs that the government and industry incur because of all the audits."

Mechanics

Industry would like for the meeting to be behind closed doors, but the Administrative Procedures Act may not allow that.

If MMS is persuaded to change the royalty rule, it might hold more "technical sessions" with industry. It would have to reopen the rule and accept public comments on the alterations. It has time to do that, but perhaps not the inclination.

An MMS official said the agency would consider a meeting with the CEOs, but the agency already has changed the royalty rule twice to meet industry objections.

Industry also may want more concessions than it is willing to give. An oil lobbyist said, "The question is how much will these two sides will be able to come to grips with fundamental issues, such as duty to market."

He said, "It's really unclear if this meeting will be the beginning of a new process, or both the beginning and the end."