Royalty debate

It's odd that the key energy vote of the 105th Congress would be on an amendment to a spending bill. But that's what was shaping up in the U.S. Senate last week. The issue was whether Minerals Management Service should be blocked from issuing its controversial and complex oil royalty valuation rule on Oct. 1. Industry groups complain the rule, which would tie many royalty values to futures prices, is unfair and unworkable. MMS says it's necessary because oil royalties paid on the

Sept. 21, 1998

3 min read

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

It's odd that the key energy vote of the 105th Congress would be on an amendment to a spending bill. But that's what was shaping up in the U.S. Senate last week.

The issue was whether Minerals Management Service should be blocked from issuing its controversial and complex oil royalty valuation rule on Oct. 1.

Industry groups complain the rule, which would tie many royalty values to futures prices, is unfair and unworkable.

MMS says it's necessary because oil royalties paid on the basis of lease postings don't reflect the true value of the crude.

Last summer, oil-state senators blocked the oil royalty rule through an amendment to an appropriations bill. That amendment expires Oct. 1, but it allowed Sens. John Breaux (D-La.) and Kay Bailey Hutchison (R-Tex.) time to seek an MMS-industry compromise last summer.

Their effort failed (OGJ, Aug. 10, 1998, p. 26), a disappointment industry representatives blame on the intransigence of MMS Director Cynthia Quarterman and Bob Armstrong, assistant Interior secretary for land and minerals management.

Oil-state senators then amended the fiscal 1999 Interior appropriations bill to block an oil royalty rule until Oct. 1, 1999, or until MMS and industry could agree on a regulation.

The House spending bill doesn't have a similar provision, but the House might acquiesce to the Senate version.

'Big Oil' argument

The Senate debated all morning Sept. 16 (for an update, see Newsletter) whether to approve an amendment by Sen. Barbara Boxer (D-Calif.), which would remove the ban against the oil rule in the fiscal 1999 appropriations bill.

Boxer said, "The issue is simple: Big oil companies have been cheating American taxpayers out of royalty payments for years.

"In...California, where oil royalty payments go directly to our public schools, school children are being denied funding that could be used for computers, textbooks, or hot lunches.

"We cannot continue to subsidize Big Oil, who list profits in the billions each year, at the price of our children's education."

Sen. Paul Wellstone (D-Minn.) agreed: "When oil companies underpay their royalties, education loses."

Boxer insisted the MMS rule would affect only the largest 5% of oil firms.

Rebuttals

Sen. Craig Thomas (R-Wyo.) was "offended" at those allegations.

He said Wyoming independents definitely would be affected. He added, "This amendment is not about schoolchildren."

Sen. Frank Murkowski (R-Alas.) said, "MMS did not meet in good faith" last summer and "now they're trying to put their spin on the issue" by alleging that further delay of the rule would cost the government $66 million/year.

He said the Congressional Budget Office reported that delaying the rule would have no effect on federal revenues.

Sen. Slade Gorton (R-Wash.), no particular friend of the oil industry, observed that MMS appears to be trying to raise royalty collections through a rulemaking, which would have the effect of raising prices and/or cutting U.S. production.

"Those are policy decisions that should be made by Congress and not an obscure federal agency."