US Interior Sec to Review Oil Cos' Controversial Leases

WASHINGTON (Dow Jones Newswires), Feb. 23, 2009

U.S. Interior Secretary Ken Salazar said Friday that changes regarding oil companies' leases would likely be part of a comprehensive energy bill Congress is drafting.

Salazar, speaking to reporters, also said his department was considering how to recoup billions of dollars in revenues the government believes it's owed by oil companies because of controversial leases in the Gulf of Mexico that were signed in the late 1990s but omitted royalty price thresholds.

"We're going to take a look at those 1998-1999 leases. I'm not sure if it's going to be done through legislation or settlement discussions, but it is something we're considering," he said.

Government auditors say the omission could ultimately cost tens of billions of dollars in lost royalty revenues if the companies and the administration reach a settlement.

Many of the companies have been willing to pay royalties on future production, but some Democratic lawmakers have tried to pass legislation that would prevent the government signing new leases with the firms if they don't again negotiate.

Six companies -- including BP PLC, Royal Dutch Shell, ConocoPhillips and Marathon -- originally agreed to pay royalties on the leases for production from October 2006. But negotiations have stalled, particularly after a court ruling in favor of the oil industry, and the firms only represented a fraction of the total lease owners.

Around 40 companies representing 80% of the production haven't agreed to re-negotiate the leases, including Exxon Mobil Corp., Total SA, Chevron Corp. and Anadarko Petroleum Corp., according to Interior Department data. Democrats have been seeking royalty payments for all output from the leases.

Salazar has said one of the royalty changes he's considering doing away with is the royalty-in-kind, or RIK, policy and other programs. The RIK allows companies to pay their royalties to the government in oil rather than cash.

"Maybe as we deal with the royalty-reform issue, we might be able to create the kind of revenue stream that will allow funding of landmark conservation funds" and other programs, Salazar had said earlier this month.

Another possible target is the deep-water royalty relief program. Industry officials say they're concerned, and such reform could prevent new development, particularly in more costly offshore areas.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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