MMS: Drilling Deals Will Bring $1.4B in Future Royalties

WASHINGTON Feb. 28, 2007 (Dow Jones Newswires)

Drilling agreements federal officials reached with six oil and natural gas companies late last year will bring the federal government about $1.4 billion more in future royalty payments, according to a letter sent by U.S. Minerals Management Director Johnnie Burton to a U.S. lawmaker Tuesday.

But the letter to Rep. Maurice Hinchey, D-N.Y., also noted that the federal government could have seen an additional $1 billion if the drilling deals had required companies to pay royalties on production that occurred prior to October 2006.

The letter comes as various lawmakers are still aiming to reach agreement on how to create a legislative fix for dozens of flawed 1998 and 1999 leases that allow energy companies to drill in the Gulf of Mexico without paying royalties to the federal government.

Hinchey, in particular, has argued that the December deals MMS reached with companies such as BP PLC (BP), ConocoPhillips (COP), Marathon Oil Co. (MRO) and Royal Dutch Shell (RDSA) aren't aggressive enough to ensure that taxpayers aren't being hurt by Big Oil.

The terms of the agreements continue the Interior Department's "pattern of giving sweetheart deals to the oil industry and a raw deal to American taxpayers," Hinchey said in a letter to Burton late last year.

Under an aggressive bill co-sponsored by Hinchey and opposed by the oil industry, companies would have had to renegotiate the controversial Gulf of Mexico drilling contracts or else they would lose out on future leases in the region.

The Senate has held hearings on the issue, but has yet to act on the proposal.

Meanwhile, MMS is still in talks with the 22 other energy companies that hold the flawed royalty-free leases, urging them to voluntary modify the controversial drilling contracts.

Still, Burton Tuesday said the negotiations seem to be on hold.

While MMS - the Interior Department unit that oversees energy development on federal lands offshore - may be able to reach a few more agreements, most companies seem to be waiting to see how Congress reacts to the issue, Burton told reporters after testifying before a House panel.

"We're still hoping to make progress with a few of the companies, but I have a feeling a lot are just waiting to see what Congress is going to do," she said.

Copyright (c) 2007 Dow Jones & Company, Inc.

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