August 30, 2006 - MARKEY: BUSH ADMIN SHOULD FORCE ALL OIL CO'S TO RENEGOTIATE DRILLING ROYALTIES, NOT JUST SMALL FRACTION

MEDFORD, MA -- Rep. Edward J. Markey, a senior member of the House Resources and Energy and Commerce Committees, released the following statement in reaction to comments made by a Bush Department of Interior official, Mineral and Management Services Director Johnnie Burton on a handful of oil companies voluntarily coming forward to renegotiate their royalties on deepwater oil and gas production:

 

“The Bush Administration refuses to mandate that oil companies stop fleecing the American people by drilling for free on public land,” Markey said.

 

 

 

According to the Department of Interior, 56 companies hold 576 leases purchased in 1998 and 1999 that remain active and do not suspend royalty relief when the price of oil is high. The Government Accountability Office has estimated that the lost revenue from these leases could cost the federal government $10 billion.

“The oil-soaked Bush Administration is patting itself on the back for getting a fraction of the companies still holding active 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 continued.

 

 

“This Administration thinks it is enough for 25 percent of the industry to agree to do the right thing; but the public interest demands that 100 percent of the industry disgorge these royalty windfalls if they want the privilege of producing oil and gas on leases belonging to the public.  Anything less is just another Bush Administration gift to Big Oil,” Markey concluded.

 

The Markey amendment to the Department of Interior appropriations bill would provide a strong incentive for all of these oil companies to renegotiate their royalty-free leases at a time when American consumers are paying very high gas and energy prices.  The amendment offered by Reps. Markey and Hinchey to the Department of Interior appropriations bill would prevent oil companies holding leases that do not include a price threshold above which royalty relief is suspended from purchasing new leases from the federal government. 

 

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This is the story that ran in Reuters last night on the comments by the Bush Administration official in charge of oil and gas leasing and royalties at the Department of Interior:

 

Reuters, Tuesday, August 29, 2006

 

 

US energy firms offer higher royalty to fix lease

 

By Bruce Nichols


HOUSTON, Aug 29 (Reuters) - About a dozen offshore oil and gas producers have offered higher royalties on deepwater production to ease Congressional anger about a lease-writing mistake that has lost the government about $1.5 billion in revenues, the head of the U.S. Minerals Management Service said on Tuesday.

MMS Director R. M. "Johnnie" Burton estimated as many as 24 companies may have underpaid and said "about a dozen" have volunteered to pay more royalties on the oil and gas they produce from leases in deepwater in the Gulf of Mexico.

"We haven't signed up anybody yet, but I think we're close," she said at a Houston conference. "We're working with them."


She didn't name companies or discuss details, but officials of Dominion Exploration & Production Inc. (D.N: Quote, Profile, Research) and Newfield Exploration (NFX.N: Quote, Profile, Research) -- appearing at the same conference as Burton -- confirmed they are talking but also would not discuss details.

 


One oil executive agreed it's fair to cut incentives when prices skyrocket, but he said the government should reduce royalties when prices plummet, not just based on some threshold but taking into account the price a company relied upon when it invested in a project.

 


"Hopefully, there will be royalty relief that goes both ways," said Al Reese Jr., chief financial officer of ATP Oil & Gas Inc. (ATPG.O: Quote, Profile, Research).
 

 

The MMS lease-writing mistake involved incentives offered to encourage deepwater drilling. The intention was to include a "threshold" price of $34 per barrel, above which royalties would kick in, but leases written in 1998 and 1999 did not include that provision.

 

 

 

Prices have been well above $34 the past two years. Estimates of lost revenue for the government range as high as $10 billion, although Burton said actual losses have been $1.5 billion.
The error has prompted accusations in the U.S. Congress of skulduggery inside MMS and raised the prospect of some kind of legislative action.

 


But after an internal investigation, MMS said a communication problem between MMS rule-writers in Virginia and the MMS lease-sellers in New Orleans caused the problem.

 


The New Orleans office thought the threshold had been written into a rule and therefore did not need to be negotiated into leases. But the rule was never implemented because it was decided it would be too inflexible, Burton said.

Burton said it would be helpful to find a voluntary solution before Congress returns from recess next month because proposed legislation has included punitive measures to force companies to the table.
"I keep hoping that if enough companies come in and agree to the threshold Congress might not put any damaging language in their appropriations bill, which it looks like that's where they're going with it... But it needs to happen fast," she said.

 


"The administration doesn't like this ... because this approach is essentially reneging on a contract, which we don't want to do. So what I have told industry is we'll live with the contract unless Congress makes us change it," she said.

 


"I really would hate this country to sound like, you know, Bolivia," she said, referring to after-the-fact contract changes imposed on operators by the South American country.

 

FOR IMMEDIATE RELEASE
August 8, 2006

CONTACT: Israel Klein
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