No Drilling Compromise without Royalty Deal

Richard Pombo
(Click to Enlarge)
WASHINGTON Sep 26, 2006 (Dow Jones Newswires)

U.S. House Resource Committee Chairman Richard Pombo, R-Calif., won't compromise on a hard-fought congressional drilling bill without a clause requiring oil and gas companies to renegotiate 1998-1999 oil and gas leases, he said in a letter to fellow lawmakers.

Pombo and other lawmakers want oil companies to pay royalties on past production from the 1998-1999 leases that omitted a royalty obligation to the U.S. government by making renegotiation a prerequisite for any new lease awards.

Senate and House lawmakers are working to push a drilling bill compromise through Congress this week before the session closes, but many aides and industry experts remain skeptical than an agreement can be reached because the two sides are so staunchly entrenched. The House bill would potentially allow drilling off the coast of all U.S. states while the Senate bill would limit drilling to areas off the Gulf Coast.

Although some U.S. lawmakers are optimistic Congress can pass an offshore oil and gas drilling measure before the campaign recess next week, some analysts said they're doubtful an impasse on drilling policy will break anytime soon.

Members of Congress are on track to leave Washington late Friday to campaign for the Nov. 7 congressional elections.

"Rest assured, my royalty recovery language will remain intact in any compromise that is reached, or there will be no compromise," Pombo wrote to Democrats accusing him of not adequately responding to the royalty issue. Pombo, a primary author of the House drilling bill, is also one of the major negotiators trying to hammer out an agreement.

Sen. Dianne Feinstein, D-Calif., a member of the Senate's Energy and Natural Resources Committee, has previously tried to encourage the royalty leverage in the Senate's bill, which currently doesn't include such language.

Marnie Funk, spokeswoman for Committee Chairman Sen. Pete Domenici, R-N.M., said he doesn't oppose the House's royalty compromise itself.

But, she added: "He opposes it because it is written in such a way that he believes it will never stand up in a court of law. It simply leads to more litigation."

Last week, Johnnie Burton, director of the Minerals Management Service, which is responsible for managing offshore oil and gas leases, said she believed legislation that used new leases to leverage royalties from past production would be unconstitutional and violate the sanctity of government contracts.

Lawmakers, however, pointed to a Congressional Research Service study that found it wouldn't be unconstitutional and said the companies wouldn't be forced to sign any new leases if they didn't like the terms.

Burton said she'll successfully get the 10 major oil companies that own most of the leases and are currently negotiating with the MMS to sign a contract agreeing to pay royalties on future production.

Burton said she estimated the government lost around $1.3 billion from what she called a mistake in the royalty clause omission.

The issue of how omission was made - whether intentionally, an innocent mistake or a case of an incompetent bureaucracy - was the subject of several investigations, including an oversight hearing from the House Committee on Government Reform.

House Democrats are calling on Pombo to call a Resources Committee oversight hearing.

Copyright (c) 2006 Dow Jones & Company, Inc.

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