U.S. House Votes to Repair 'Royalty Relief'

Offshore oil and gas producers stand to lose billions of dollars in federal subsidies under legislation passed by the House yesterday.

A successful Democratic amendment to the House version of the fiscal year 2007 Interior Department spending bill aims to renegotiate late 1990s leases that allow royalty relief but lack "price thresholds" that end the incentive when prices reach certain limits.

The language is aimed at scores of 1998 and 1999 leases that were entered into without price thresholds. Specifically, the chamber voted to bar Interior from using fiscal 2007 money to issue new leases to companies that already have leases that lack price thresholds.

The amendment offered by Rep. Maurice Hinchey (D-N.Y.) passed 252-165.

The omission of price threshold language in 1998 and 1999 leases -- which cover about 1,000 leases -- means the government could lose billions in royalties that producers would otherwise owe in coming years. Interior has called the omission inadvertent. A March Government Accountability Office draft analysis found that the issuance of leases without price thresholds could cost the government up to $10 billion.

The amendment is necessary to force companies to pay royalties in a climate of high oil and gas prices, advocates say. "If you are going to play Uncle Sam as Uncle Sucker, we are not going to allow you to have any new contracts," said Rep. Ed Markey (D-Mass.).

Dan Naatz, vice president for federal resources with the Independent Petroleum Association of America, said the group would seek to stop the measure from becoming law. "It sends a signal the United States does not abide by the contracts and obligations which it entered into," he said in an interview yesterday. Several GOP lawmakers who argued against the amendment similarly said Interior should not seek to change signed contracts.

Naatz said it could affect some producers' ability to bid on leases in fiscal 2007 lease sales.

Appropriations Committee lawmakers had accepted an earlier amendment from Hinchey last week that sought renegotiation of the 1998 and 1999 leases. But it was removed from the bill on a point of order yesterday by Rep. Steve Pearce (R-N.M.). Hinchey later offered the modified version of the plan.

Copyright 2006 E&E Daily. All Rights Reserved. Visit E&E Publishing for a free trial.

For More Information on the Offshore Rig Fleet:
RigLogix can provide the information that you need about the offshore rig fleet, whether you need utilization and industry trends or detailed reports on future rig contracts. Subscribing to RigLogix will allow you to access dozens of prebuilt reports and build your own custom reports using hundreds of available data columns. For more information about a RigLogix subscription, visit www.riglogix.com.