An amendment tacked on to a Senate defense spending bill late Thursday would end royalty relief for producers that drill on federal leases in the Gulf of Mexico (GOM) when commodity prices reach certain levels. The Department of the Interior currently has the discretion to end royalty relief when producers are earning record profits from high oil and natural gas prices.

The amendment, sponsored by Sen. Jon Kyl (R-AZ), would require Interior to insert language into drilling leases to forgo royalty relief when energy prices reach a certain level. Producers now pay royalties generally based on 12.5-16.67% of the value of the oil and gas they drill. However, Interior may waive the initial production royalties in certain GOM areas where it is more costly to drill, such as in deepwater.

The House Government Reform Committee is investigating the absence of price thresholds in deepwater drilling leases signed by the Interior Department in 1998 and 1999. It is estimated that producers have been able to avoid paying billions in royalties because of the lack of a price threshold during that time period. The Interior Department has said the price thresholds were accidentally left out of the leases, and it has said it will cooperate fully with the committee investigation.

On Thursday, Committee Chairman Tom Davis (R-VA) and Energy and Resources Subcommittee Chairman Darrell Issa (R-CA) sent a letter to Dirk Kempthorne, the new Interior secretary, accusing the department of slowing the committee’s investigation by not releasing requested documents and emails about the questionable contracts.

“Though we have made significant progress in this investigation, we are deeply concerned that the Department may have intentionally withheld critical information,” Davis and Issa wrote in their letter. “If this is the case, then it has intentionally impeded this duly authorized congressional investigation.” The letter indicated that in “recent conversations with the Subcommittee staff, they made reference to people who may have ordered the elimination of price thresholds in the deepwater leases. That kind of information is critical to this investigation, especially since Interior officials have testified to the contrary.”

Davis and Issa requested Interior produce all records relating to the leases from a period between Jan. 1, 1996 through Dec. 31, 2000, including all emails, by Aug. 10.

A vote is expected on the defense spending bill in September. Both the Senate and the House would have to reconcile differences in their bills before a final bill is approved and sent to the president.

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