WASHINGTON, D.C.– Today, Representative Edward J. Markey (D-MA), a senior member of the House Resources Committee, asked for an explanation why oil and gas companies are being given so much royalty relief on natural gas produced from deep wells in shallow waters.  Rep. Markey sent the letter to Johnnie Burton, director of the Minerals Management Service (MMS), the agency within the Department of Interior that oversees oil and gas drilling on public land.

While recent attention has been focused on the fact that oil and gas companies pay no royalties on oil and gas produced offshore in deep water, companies are also exempt from paying royalties on the production of natural gas from deep wells located in shallow waters – which are defined as well depths that are greater than 15,000 feet.  Companies have an increasing interest in producing such deep well gas as was revealed by the bidding on numerous new leases offered for deep gas in the Central Gulf of Mexico.  MMS noted in its press release on the sale “While interest in deep water production continues, the large number of tracts receiving bids in shallow water is of particular note, indicating industry interest in deep gas in shallow waters, as well as deep water oil and gas production.”

MMS sets the price cap above which royalty relief is suspended. However, the price cap that MMS has set for the suspension of deep well royalty relief is significantly higher than the price cap for deep water natural gas production. MMS estimates that in 2006, the price cap for deep gas royalty relief will be $9.91 -- 44% higher than the price cap for deep water natural gas production. Moreover, as high as natural gas prices are right now, they would still have to increase by roughly 40 percent before MMS would suspend royalty relief on deep gas produced from recent leases.

“The American people deserve to know why the Department of Interior’s Minerals Management Service has decided to set such a high price cap for natural gas produced from deep wells in shallow water,” said Rep. Markey. “The recent lease sale in the Gulf of Mexico shows us that the oil and gas companies have apparently discovered this latest loophole that could lead to the loss of billions of dollars for American taxpayers over the life of these leases.”

“Royalty relief is turning out to be a royal rip-off of the American people and the federal government,” continued Rep. Markey. “As oil and gas companies are making record profits, the Bush Administration should be putting a halt to this fleecing of American taxpayers, not exacerbating it.”

Rep. Markey has introduced H.R. 4749, legislation that would prevent royalty relief on new leases when oil and gas prices are high and instruct the Secretary of Interior to seek to renegotiate current leases offering royalty relief.

For more information or a copy of Mr. Markey’s letter, check out: http://markey.house.gov.

 Copy of Letter to MMS (3/27/06) (63.60 KB)