The American Petroleum Institute (API) has disputed House Speaker Nancy Pelosi’s (D-CA) charge that producers are “not paying royalties to the taxpayer” for oil and natural gas production on federal lands and the federal Outer Continental Shelf. Pelosi made the accusation Sunday on NBC’s “Meet the Press.”
Citing Interior Department figures, API said domestic oil and gas producers paid an estimated $8.7 billion in royalties to the Treasury Department during fiscal year 2007 from production on federal onshore and offshore areas. The industry also has paid $6.8 billion in bonus bids to the federal government to acquire leases in four lease sales held so far this year, according to the institute, which represent majors producers.
Producers pay one-eighth of the value of production for onshore federal leases, and one-sixth of the value of production for offshore leases, according to Interior’s Minerals Management Service. The oil and gas industry is ranked as the second largest contributor of funds to the federal treasury behind the Internal Revenue Service.
Nevertheless, there are ongoing disputes between producers and the government over royalties. With the run-up in crude oil and natural gas prices this year, the Government Accountability Office (GAO) in June estimated the federal government could be out more than $50 billion in revenues over the next couple of decades — far more than was previously estimated — as a result of flawed 1998-1999 deepwater leases and a court challenge by Kerr-McGee Oil and Gas, now part of Anadarko Petroleum, if upheld on appeal (see Daily GPI, June 9).
The 1998-1999 leases alone, which excluded critical price thresholds, could yield revenue losses between $8.7 billion and $14.7 billion under a scenario in which oil prices are $100/bbl and natural gas prices are $8/Mcf, the GAO report said.
The revenue losses to the federal government would balloon if the U.S. District Court for the Western District of Louisiana’s ruling in favor of Kerr-McGee is upheld on appeal. In October 2007 the court held that the Deep Water Royalty Relief Act (DWRRA) did not provide Interior with the authority to impose price thresholds on production below the royalty suspension volumes for leases issued from 1996 through 2000 (see Daily GPI, Nov. 2, 2007). The Department of Justice has filed a notice to appeal the decision. Kerr-McGee brought the lawsuit in March 2006, five months before it was acquired by Anadarko (see Daily GPI, Aug. 24, 2006).
Assuming that the Louisiana district court’s ruling in the Kerr-McGee case is upheld, future foregone royalties from all of the DWRRA leases issued from 1996 through 2000 (including the flawed 1998-1999 leases) could range from a low of about $21 billion to a high of $53 billion, according to the GAO. “The $21 billion figure assumes low production levels and oil and gas prices that average $70 per barrel and $6.50/Mcf over the lives of the leases. The $53 billion figure assumes high production levels and oil and gas prices that average $100 per barrel and $8/Mcf over the lives of the leases.”
The favorable Kerr-McGee decision gave a shot in the arm to other offshore producers, which are fighting the efforts of the federal government to collect billions in royalties on 1998-1999 deepwater leases that, due to a mistake on the part of Interior, failed to include price thresholds, which were intended to cut off royalty relief to producers when the market prices for oil and natural gas exceeded certain levels. As a result of the oversight, producers have been able to forgo royalty payments on certain volumes of production (see Daily GPI, July 28, 2006).
©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |