The House Government Reform Committee is “gratified” at the Bush administration’s progress in getting producers to voluntarily agree to pay higher royalties on deepwater oil and natural gas production, but it won’t slow down the committee’s investigation into why price thresholds were absent from leases issued in 1998 and 1999 — an oversight that is costing the federal government billions of dollars, a staff member said.
“We’re gratified by it [the news], but we think it wouldn’t have happened without our oversight,” said David Marin, staff director of the committee, which has been investigating the missing lease price thresholds since March.
“Our investigation isn’t over. We still need to find out why the price thresholds were missing in the first place,” he told NGI. Marin expects the committee to take a “significant step forward” in answering this question on Sept. 13 when Interior Department’s Inspector General Earl E. Devaney will testify before the Government Reform’s Subcommittee on Energy and Natural Resources. “He’s [Devaney] been investigating this for many months. He has many of the same documents that we have.”
Marin said Interior Secretary Dirk Kempthorne will likely be called to testify before the full committee at a follow-up hearing.
Rep. Edward Markey (D-MA), a strong proponent of ending liberal royalty relief for producers, had a less-than-optimistic reaction to the Bush administration’s news that some producers are taking steps to right the situation involving the missing price thresholds. He accused the administration of not being tough enough with producers to resolve the debacle over the absent price thresholds that have allowed some producers to underpay or escape paying royalties on deepwater oil and gas production.
The Bush administration “is patting itself on the back for getting a fraction of the companies still holding active [royalty-free] leases to voluntarily talk about paying their fair share, when it should be forcing all of these big oil companies back to the negotiating table,” Markey said.
His comments came after Minerals Management Service (MMS) Director R.J. “Johnnie” Burton disclosed Tuesday that about a dozen oil and gas producers have voluntarily agreed to pay higher royalties on deepwater production in an effort to quell the rage on Capitol Hill over the royalty-free leases.
Burton estimated that of the approximately 24 companies that may have underpaid royalties, about a dozen have volunteered to pay more royalties on oil and natural gas produced on leases in the Outer Continental Shelf (OCS), primarily the Gulf of Mexico, Reuters News Service reported.
But Markey, citing Interior Department figures, believes more producers are underpaying royalties. He said 56 companies hold 576 active leases that were purchased in 1998 and 1999 and on which owed royalties are not being paid. The reason: due to an MMS mistake the leases in those two years do not contain the critical price ceilings that serve as a benchmark to determine when oil and gas production becomes subject to federal royalties. Without them, producers who negotiated leases in 1998 and 1999 have been able to escape paying full royalties on production up to a specific volume limit.
The price caps were included by the MMS in leases that were negotiated in 1996, 1997 and 2000, but were not in the 1998 and 1999 leases. The Government Accountability Office (GAO) has estimated that this mistake by MMS will cost the federal government upwards of $10 billion over the life of the leases, of which nearly $2 billion has already been lost.
An amendment to a House appropriations bill for fiscal year 2007, sponsored by Markey and Rep. Maurice Hinchey (D-NY), would bar producers who currently hold these royalty-free leases from purchasing new leases if they refuse to renegotiate the terms of the royalty-free leases with Interior.
©Copyright 2006Intelligence 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 |