The Bush administration’s efforts to renegotiate flawed 1998-1999 deepwater oil and natural gas leases will be put on hold through the fall season to see if Congress acts on the issue in its energy legislation, the head of the Minerals Management Service (MMS) said last Monday.
“I suspect we will do nothing in the fall,” said MMS Director Randall Luthi during a briefing with reporters at Platts’ Energy Podium in Washington, DC. “We’re going to wait and see what Congress does, if they do anything on them.”
If Congress doesn’t pass energy legislation this year, “I’ll probably have discussions with my staff” at the beginning of next year about the possibility of trying another approach to convince producers, who still hold these flawed leases, to renegotiate with the federal government, he said.
He declined to say what actions he might take to get producers to the negotiating table. “I certainly don’t think any doors are particularly closed for me. I just don’t know what all the doors are yet,” said Luthi, who became director on July 23 following the departure of embattled MMS Director Johnnie Burton.
Luthi said no producers have approached him to renegotiate the disputed leases since he took office in July.
The MMS earlier this year estimated that up to $9.8 billion in royalties could be lost to the federal government if the missing price thresholds in 1998 and 1999 deepwater leases aren’t corrected . The Government Accountability Office, in a report released in April, said the agency’s estimate was reasonable (see NGI, April 16).
The MMS gave producers a break on royalties in the late 1990s, when oil and gas prices were low, to spur exploration and production in the Gulf of Mexico. The lease agreements were supposed to contain price-threshold language stating that the price relief would come to an end when oil and gas market prices soared above a certain level. But the Department of Interior left the language out of 1998 and 1999 leases — a mistake that allowed producers to escape royalties on certain volumes despite high prices for oil and natural gas. The MMS has been under intense pressure from Congress for more than a year to renegotiate the leases to recover the royalties.
The current House energy bill would force holders of the 1998-1999 Gulf leases to renegotiate their contracts with Interior or pay a hefty “conservation of resources fee” in order to bid on future government leases. The Senate bill contains no such provision (see NGI, Aug. 13).
During Burton’s term, the MMS renegotiated leases with only a handful of producers, but the majority of the holders of the disputed leases — as many as 50 producers by some estimates — have refused to come to the negotiating table.
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