U.S. Interior to Work with Lawmakers on Extending Gulf Leases

Interior Secretary Dirk Kempthorne endorsed efforts today by two key senators to extend Gulf of Mexico oil-and-gas leases by three years in an attempt to either recoup lost royalties or institute price thresholds on leases from the late 1990s.

At a Senate Interior Appropriations Subcommittee hearing, Kempthorne said only six companies have volunteered to renegotiate the 1998 and 1999 leases signed without price thresholds, and action is necessary to get others on board. "I believe those companies are waiting to see if there will be action taken by Congress," Kempthorne said.

Subcommittee Chairwoman Dianne Feinstein (D-Calif.) and Sen. Pete Domenici (R-N.M.) are working on separate plans for a three-year extension to entice companies to renegotiate. Domenici said he would attempt to add language to one of the fiscal 2008 spending bills if necessary. All companies may want to deal but most will, he said. "I think there's an awful lot of them that will sign on," Domenici said.

A Domenici aide said his bill would likely attempt to institute price thresholds for the 1998 and 1999 leases, not necessarily recoup royalties already lost.

Interior has been under fire over its efforts to address the late 1990s deep water leases that allow royalty waivers regardless of energy prices. The mistake, if uncorrected, could eventually cost the Treasury an estimated $10 billion in lost royalties. It has already resulted in nearly $1 billion in foregone royalties, according to MMS estimates.

The Democratic-led House passed legislation this year that contains a much tougher approach. It would deny companies holding 1998-1999 leases the ability to buy new offshore leases unless they agree to price thresholds or pay other new fees (E&ENews PM, Feb. 27).

Kempthorne would not say if he prefers the House-passed language or the Senate approach and said Interior will work with Feinstein and Domenici. "It was a positive dialogue," he told reporters after the hearing.

Regardless of the outcome, the error from 1998 and 1999 will not happen again. "There will not be a duplication of what happened," Kempthorne said. "There will be safeguards in place."

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Company: Minerals Management Service (MMS) more info
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