US House Panel OKs Bill to Force Renegotiation of Oil Leases

WASHINGTON, Jun 7, 2007 (Dow Jones Newswires)

The U.S. House of Representatives' Appropriations Committee approved an amendment Thursday to an Interior budget bill that would require oil companies to renegotiate 1998-99 lease contracts that neglected price thresholds to obtain future exploration leases.

The Government Accountability Office estimates that around $1 billion in royalties have already been lost as a result of the omission, and could cost tax payers an additional $9 billion in future royalties.

The proposal, offered by Rep. Maurice Hinchey, D-N.Y., passed by a voice vote, and the Interior appropriations bill was later passed.

"It's the right thing to do to keep the pressure on the oil industry," said Rep. Norman Dicks, D-Wash. The House has previously passed similar legislation but the measure was blocked in the Senate.

Although six companies including BP (BP), Royal Dutch Shell (RDSA), ConocoPhillips (COP) and Marathon (MRO), have agreed to pay royalties on the leases on production from October 2006, they only represent a fraction of the total lease owners.

Around 40 companies representing 80% of the production haven't agreed to renegotiate the leases, including ExxonMobil Corp. (XOM), Total (TOT), Chevron Corp. (CVX) and Anadarko Petroleum Corp. (APC), according to Department of the Interior data. Democrats have been seeking royalty payments for all output from the leases.

Rep. Todd Tiahrt, R-Kan., opposes the bill, saying that Hinchey's bill would violate the sanctity of contracts: "these were valid contracts ... and we would be over-ruling goodfaith agreements."

"I agree it's the right thing to do, but it's the wrong method to get there," Tiahrt said.

In the Senate, Dianne Feinstein, D-Calif., Chairwoman of the Senate Appropriations Subcommittee on Interior, Environment and Related Agencies, and Sen. Pete Domenici, R-N.M., a member of the appropriations subcommittee and the ranking member of the Energy and Natural Resources Committee, are drafting bi-partisan legislation to extend offshore oil and gas leases signed in 1998-99 that omitted royalty price thresholds to encourage companies to renegotiate the contracts.

Feinstein last month told Dow Jones Newswires that the lease-extension legislation would be in the appropriations bill.

"We tried to explore the possibilities of litigation and came to the conclusion that there is no way of preventing litigation," she said.

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

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