September 14, 2006 - MARKEY, HINCHEY, OTHERS URGE KEMPTHORNE TO BAR FUTURE OIL LEASES FROM COMPANIES THAT REFUSE TO RE-NEGOTIATE OLD ROYALTY-FREE LEASES

WASHINGTON, D.C. -- Rep. Edward J. Markey (D-MA), a senior member of the House Resources and Energy and Commerce Committees, along with Rep. Maurice Hinchey (D-NY) and others urged Interior Department Secretary Dirk Kempthorne to get behind pending legislation that would fix a costly mistake that allows some big oil companies to skirt paying royalties on oil discovered on federal lands, despite making record profits.  Amidst the uncertainty of whether or not royalties will be paid on the newest discovery of oil in the Gulf of Mexico by a group of oil companies including Chevron, Reps. Markey and Hinchey called on the Secretary Kempthorne to support their House-passed amendment to give the government more leverage in seeking a renegotiation of these oil leases immediately.  The Bush Administration has been opposed to renegotiation and the Department of Interior Inspector General found an “anything goes” mentality among Dept. of Interior oil and gas leasing division, which could explain the opposition.

Reps. Markey and Hinchey co-authored a measure to make oil lease renegotiations mandatory to erase the exemption many oil companies have on paying royalties for oil drilled on federal lands.  The measure passed as an amendment to the Department of Interior appropriations bill.

Rep. Markey said, "The Interior Department's I.G. points to an 'anything goes' attitude at the Department's oil and gas leasing operations, which perhaps explains their opposition to a bipartisan effort to renegotiate oil leases that exempt industry from paying royalties.  Allowing royalty-free drilling for huge, highly profitable oil and gas companies is like giving out ice in the winter – it is totally ridiculous.  The public trust has been violated by an Interior Department that is chock full of individuals who were plucked from the private sector for the explicit purpose of loosening up federal oversight of our public lands."

"This problem of royalty-free leases started with a clerical error made by Interior Department officials in the 1990's, but it has been greatly exacerbated by the unwillingness of the Bush administration to put pressure on oil and gas companies to come back to the negotiating table and do the right thing, which is to operate in good faith with the federal government," Hinchey said. "The Interior Department's Inspector General has made it very clear that officials at that agency are operating in an unethical manner.  The fact that the Bush administration is not fighting tooth and nail like we are in Congress to get these leases corrected so the American people can receive the tens of billions of dollars they are owed by oil and gas companies is just one more example of the misguided priorities of the Interior Department."

The letter signatories are:  Nick Rahall (D-WV), Carolyn Maloney (D-NY), George Miller (D-CA), Raul Grijalva (D-AZ), Bernie Sanders (I-VT), Jim Moran (D-VA), and Rosa DeLauro (D-CT).

The letter Markey and Hinchey are circulating for signatures now and will send to Kempthorne today is below:

September 14, 2006

The Honorable Dick Kempthorne
Secretary
US Department of Interior
Washington, DC  

Dear Secretary Kempthorne:

Recent reports have indicated that a group of oil companies led by Chevron have discovered reserves estimated to be holding between 3 and 15 billion barrels of oil in the deepwaters of the Gulf of Mexico, in the so-called Jack Field. We are writing because of our concern that some of the deepwater leases issued in the late 1990’s that cover this newly discovered field omit price thresholds based on market-price, rendering them royalty-free.

On Tuesday, The New York Times reported that the companies holding leases in this new oil field could avoid more than $1 billion in royalty payments to the federal government for the production of oil as the result of the lack of price thresholds.  As reported in The New York Times, Chevron and its partners, Devon Energy and Statoil ASA of Norway, have six leases in the Jack oil field, approximately 175 miles off the coast of Louisiana.  According to the article, two of these leases would allow the companies to avoid royalties on as much as 87.5 million barrels of oil per lease.  While the exact total of the lost revenue would depend on the volume of oil actually produced and the price of oil at the time of production, The New York Times estimated that it could amount to as much as $1.5 billion in unpaid royalties if oil is $70 a barrel.  What's more, even without this new field, the General Accountability Office has already indicated that the federal government and the American taxpayers stand to lose as much as $20 billion over the next 25 years due to the other existing 1998/1999 leases that were issued with no price thresholds, an omission the Department of Interior states was due to a clerical error.

While news reports have also indicated that the Department of Interior is currently seeking to persuade oil companies to voluntarily renegotiate these leases, we have already successfully offered a solution that would provide companies, including those with leases in the Jack Field, with a strong incentive to renegotiate. As you know, this past May when the Interior Appropriations bill was on the floor of the House, we led an effort to amend the bill to bar companies holding royalty-free leases from purchasing future leases from the federal government.

Our amendment overwhelmingly passed the House 252-165, and the Senate followed suit, adding similar language on its version of the bill.   The American people own these resources and should get a fair return when we allow private, for profit, single-use development on these publicly-owned submerged lands.  We are certain that our amendment creates a strong incentive for these companies to renegotiate the leases in question with the Interior Department at a time when oil companies are making record profits.

We took this action because the American people own the offshore public lands and we should properly collect royalty payments from companies that profit from the development of these public lands.  We offered our amendment to create a solution to a problem that was begging for one.  The recent discovery of the Jack Field only underscores the need for our amendment to prevail this year.

It is our hope that you will agree with the House and Senate decisions and will support a real solution that will provide a strong incentive for all oil companies holding these leases to renegotiate.  Doing so will help put an end to billions of dollars of royalty free oil and gas production at times when prices are high and people are paying a greater share of their incomes on basic necessities like fueling their cars and heating and cooling their homes.

Inspector General Devaney's testimony on Capitol Hill on Wednesday painted a very bleak picture of how the Interior Department operates.  Stopping short of labeling activities at the department as criminal, Devaney made it clear that Interior Department officials have consistently engaged in unethical and inappropriate behavior that has favored the interests of outside oil and gas companies over those of the American people. We realize that you have inherited these problems and we truly hope you take the steps to remedy them quickly.  This is an opportunity for the Interior Department to start fighting for the American people rather than acquiescing to the oil and gas industry.  We hope that you will begin this effort by supporting our attempt to correct these leases in error in the Fiscal Year 2007 Interior Appropriations bill.

We thank you for your time and we look forward to hearing your response on this critical issue at your earliest convenience.

Sincerely,

Maurice Hinchey        Ed Markey
Et al.

FOR IMMEDIATE RELEASE
September 14, 2006

CONTACT: Israel Klein
202.812.8193