Bingaman Seeks White House Response to Royalty Decision

The chairman of the Senate Energy and Natural Resources Committee wants the White House to respond to a court ruling that blocks Interior Department authority to collect royalties on some offshore oil and gas production.

New Mexico Democrat Jeff Bingaman is circulating a sign-on letter among Senate colleagues following a federal judge's decision on Gulf of Mexico royalties this week. The decision by Judge Patricia Minaldi of the U.S. District Court for the Western District of Louisiana addresses deepwater leases issued between 1996 and 2000 and bars Interior from ending royalty waivers when oil prices are high (Greenwire, Nov. 1).

The ruling addressed leases purchased by the Kerr-McGee Oil and Gas Corp., but could affect billions of dollars in future payments from other producers. Kerr-McGee was purchased by Anadarko Petroleum Corp. last year. Interior says it may appeal the ruling.

The Bingaman letter, obtained by E&ENews PM, says the administration has not supported legislative proposals to address controversial royalty waivers. "We are writing to determine what steps you plan to take to address this serious new problem," the letter says.

The court decision would allow royalty waivers that were not intended under the 1995 Deep Water Royalty Relief Act, the letter says. The law, written at a time when oil prices were low, was intended to spur costly deepwater projects by waiving royalties on large amounts of gulf oil and gas production.

"We must contemplate the real possibility that the 1995 act will be implemented in a way Congress never intended and in a way that would shock the sensibilities of most Americans," the letter says.

The letter says the potential for reduced royalty collections comes at a time of rising concerns about tight federal budgets and high energy prices. Meanwhile, it says, energy companies "already have every fiscal incentive imaginable to produce more oil and gas."

Royalty rates rise

Royalties on deepwater leases have typically been 12.5 percent, but the Bush administration has twice this year increased the rates that will apply to new leases (E&ENews PM, Oct. 31)

Kerr-McGee filed the lawsuit last year. Interior has estimated that a successful challenge to "price thresholds," which end royalty waivers when energy prices exceed certain limits, could eventually jeopardize an estimated $60 billion in royalty payments in coming decades.

"At today's prices, the potential revenue loss could well be greater," the letter states. Oil prices have recently set several records; it is currently trading at over $95 per barrel.

Lawmakers are considering several proposals to ensure federal payments from offshore producers. The efforts have centered around deepwater leases issued in 1998 and 1999 that lack price thresholds, which MMS says was a mistaken omission.

Congress is also contemplating raising industry taxes to pay for expanded renewable energy tax incentives but raising the oil sector's taxes is encountering stiff opposition from many Republicans and some "oil patch" Democrats.

Bill Whitsitt, who heads a group of large independent oil and gas producers, warns that increasing industry costs would slow investment in domestic energy. "One hundred percent of what we take in goes back into the process of trying to find more oil and gas," said Whitsitt, who is president of the American Exploration and Production Council.

Copyright 2007 E&E Daily. All Rights Reserved. Visit E&E Daily for a free trial.

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