A new letter to President Bush from Rep. Nick Rahall (D-W.Va.) is the latest congressional response to a recent federal court ruling that the Interior Department cannot end deepwater royalty waivers on some leases when oil and gas prices are high.
The case was brought by Kerr-McGee Oil and Gas Corp. -- purchased last year by Anadarko Petroleum Corp. -- and challenged inclusion of "price thresholds" in leases issued between 1996 and 2000 (Greenwire, Nov. 1).
Rahall and other Democrats say language in House-passed energy legislation would fix the problem. The bill prevents gulf producers with leases that lack price clauses from buying new leases, unless they renegotiate the contracts or pay other fees.
The provision targets leases issued in 1998 and 1999 that lacked price thresholds, which Interior has called a mistake. But Rahall, in the letter, argues the language would also capture other leases from the 1996-2000 period.
A House Democratic aide whose boss supports the provision makes the same case. While the language was aimed at companies holding 1998-1999 leases, if the Kerr-McGee decision were to stand it would also become relevant to leases in other years. The language "is actually on a larger scale now," the aide said.
Interior is urging the Justice Department to appeal the district court ruling. The Kerr-McGee ruling addressed Interior's demand to collect $157 million in royalty payments from the company. But federal officials have estimated that an adverse ruling could jeopardize $60 billion in royalties from gulf producers in coming decades if the price clauses are nullified.
The White House has threatened to veto the House bill and the gulf leasing provision is among the reasons. "With last week's court decision, and oil prices now exceeding $90 per barrel, I hope you will reconsider this stance, and urge swift passage of an energy bill containing these necessary provisions so that the American people can once again receive a fair return for their natural resources," Rahall's letter states.
The Senate Finance Committee approved a separate plan for addressing the 1998-1999 leases in June. The committee's energy tax package would levy new taxes on gulf oil and gas production, while allowing credits against the tax for royalties paid, effectively targeting producers with royalty waivers.
The committee tax plan was turned back on the Senate floor in a narrow vote in June when the Senate was debating its broad energy bill. The two chambers are currently trying to reconcile their bills, but Democratic leaders acknowledge they most likely cannot complete the effort before the upcoming two week Thanksgiving recess.
Companies threaten lawsuits
Some oil producers are already threatening lawsuits if Congress steps in. A former Democratic senator, John Breaux of Louisiana, who now represents oil companies for lobbying powerhouse Patton Boggs, sent a Nov. 6 letter to the chairman and ranking member of the Finance Committee that says legislation imposing price thresholds "directly or indirectly" on the 1998-1999 leases would violate contractual rights.
The letter says legislation would be subject to challenge as an unconstitutional "taking" without compensation and a breach of contract. An adverse ruling could leave the government on the hook for billions of dollars in damages, the letter states.
"Given the court's decision for summary judgment in the Kerr-McGee litigation, Congress should know a lawsuit is likely," he writes. The letter adds that if Congress steps in, new gulf leasing could be put on hold until legal challenges are resolved.
The letter is on behalf of the "Ad Hoc Deep Water Exploration and Production Coalition," whose members are BHP Billiton Petroleum (Deepwater) Inc., Repsol E&P USA Inc., and Total E&P USA Inc., according to Breaux's office.
Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) argues it was not congressional intent in passing the Deep Water Royalty Relief Act of 1995 to allow royalty waivers when oil and gas prices are high (E&ENews PM, Nov. 2). Breaux, in contrast, points to the Kerr-McGee decision in arguing that lawmakers did not intend to condition royalty relief for 1996-2000 leases on prices remaining below certain levels.
Finance Committee Chairman Max Baucus (D-Mont.) told reporters yesterday that lawmakers have not yet determined how they will try and address the issue. "We are trying to figure out both the substance and also what is politically doable," he said.
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