September 14, 2006 - MARKEY STATEMENT ON INTERIOR DEPT. ROYALTY RELIEF

Mr. Chairman, thank you for the opportunity to participate in today’s hearing. As you know, the Department of Interior omitted market-based price thresholds for the suspension of royalty relief on leases issued in the late 1990’s in the Gulf of Mexico. Now, at a time when oil prices are hovering around $60-70 per barrel, the American taxpayers should not be subsidizing big oil companies to drill for oil on public land. Subsidizing a big oil company to drill for oil on public land is like subsidizing a fish to swim – it just doesn’t make sense. Indeed, the Government Accountability Office has estimated that this error could result in the loss of as much as $20 to the federal treasury over the next 25 years. I am here today to remind my colleagues that the House of Representatives has already acted on a bipartisan basis to fix this problem when it passed the Hinchey-Markey Amendment last May.  As long as we protect the House language in the Interior Appropriations bill, and pass that bill this fall, we will head off yet another glaring subsidy to companies which already have all the incentives they every dreamed of in the spectacularly high world oil prices.
This past May 18, a bipartisan majority of the U.S. House of Representatives voted 252-165 for our amendment.  Despite the controversy surrounding this issue, the House recognized that this amendment threaded the legislative needle by neither abrogating existing contracts nor ignoring a public rip-off.  It does so by giving every affected company a simple choice – either renegotiate the old royalty-free leases or accept the fact that your company will be barred from any future leases from the federal government.  The amendment creates a strong incentive for these companies to renegotiate at a time when oil prices are high and oil companies are making record profits, but leaves current contracts unamended if the company chooses not to renegotiate.  The Senate has subsequently included similar language in their version of the bill.

The recently reported discovery of new reserves in the so-called Jack field in the Gulf of Mexico, estimated by Chevron to be between 3 and 15 billion barrels of oil, has further highlighted the need to take immediate action to correct these leases. This week, the New York Times reported that Chevron and its partners hold six leases in the Jack oil field, two of which, would allow the companies to avoid royalties on as much as 87.5 million barrels of oil per lease. The Times estimated that those leases could result in the loss of as much as $1.5 billion in unpaid royalties at $70 a barrel.

However, the Bush Administration and the oil companies have been fighting our amendment. The oil industry has offered a number of arguments against our amendment, each of which has been demonstrated to be completely false. For example, the oil industry has argued that our amendment would violate the sanctity of the contracts in question and force an abrogation of those contracts. However, as the Congressional Research Service clearly stated in a memo dated May 18, 2006:

“Enactment of this amendment would not constitute a taking of existing leaseholders’ rights, but would merely establish a new qualification for potential lessees.  It has long been recognized that the Government has broad discretion in determining those firms with which it will enter into contractual agreements.”

The oil industry has also argued that blocking a large number of companies from purchasing new leases would hinder production. However, our amendment provides companies that still desire to purchase new leases with a simple solution – renegotiate their old leases to add a price threshold that cuts off royalty relief whenever prices get high.

Bush Administration officials in the Department of Interior have opposed our amendment – seeking instead to attempt to cajole oil companies to “voluntarily” come back to the table to renegotiate. I will be sending a letter today to Secretary Kempthorne along with Representative Hinchey and the other sponsors of our amendment urging the Department of Interior to immediately support our amendment. We must ensure that all oil companies holding these leases renegotiate, not just a small percentage that are feeling particularly generous and public-spirited, leaving the bad actors in a position to take unfair advantage.

Our amendment is a very simple way to correct these leases and recover the billions of dollars American taxpayers stand to lose in the coming decades that received strong bipartisan support in Congress. With gas prices hovering around $3 a gallon and oil prices near $70 a barrel, the American people are again watching today to see if the Bush Administration will once again side with big oil over the American people. It is time for big oil companies to pay their fair share to drill on public land and I urge Secretary Kempthorne and the Interior Department to immediately come out in support of the Hinchey-Markey amendment.