Davis, Issa Press for Hearings on Leasing Errors

Republicans on the House Oversight and Government Reform Committee are pressing their chairman to resume the panel's inquiry into offshore oil and gas leasing errors that could lead to billions of dollars in forgone royalty payments.

"We are now five months into the 110th Congress and have not had a single hearing despite a number of significant developments," wrote ranking member Tom Davis (R-Va.) and Rep. Darrell Issa (R-Calif.) in a letter sent to committee Chairman Henry Waxman (D-Calif.) yesterday. "We are concerned that the interruption of this oversight work may negate opportunities for reform and recovery of owed royalties."

The committee under GOP leadership last year held several hearings into flawed deepwater Gulf of Mexico leases issued in 1998 and 1999. The leases contain an incentive that allows royalty waivers, but they were mistakenly issued without price thresholds that suspend the waivers when energy prices exceed certain limits.

Left uncorrected, the error could eventually lead to an estimated $10 billion in forgone royalties and has already cost the U.S. Treasury an estimated $1 billion.

The letter says the committee should address the issue in light of several developments, including the resignation of Minerals Management Service Director Johnnie Burton earlier this month, as well as Interior Department Office of Inspector General findings about management problems at Interior.

Davis and Issa say the committee should explore: what progress has been made to recover uncollected revenues; reforms enacted following the IG findings; and who has been held accountable for "mistakes and ethical lapses" at MMS.

The House passed legislation in January that would bar companies holding these leases from buying new Gulf of Mexico leases unless they renegotiate the 1998-1999 contracts or pay other fees. Senate lawmakers are also considering ways to address the problem.

Interior last year reached agreements with about a half-dozen companies to voluntarily include price triggers on production going forward. But Interior officials say more deals are unlikely while companies await congressional action.

Interior officials oppose the House approach and favor voluntary renegotiation. They have advocated an approach that would allow companies to extend the leases by three years in return for inclusion of price thresholds.

The leasing errors occurred during the Clinton administration. But Bush administration officials have come under fire for not acting quickly to address the errors, and what critics call a needlessly weak negotiating stance that relies on voluntary talks.

Interior officials say measures that effectively force companies to renegotiate would invite litigation that could delay offshore leasing and stymie production.

The letter was also sent to Rep. Dennis Kucinich (D-Ohio), who chairs the Subcommittee on Domestic Policy.

A Democratic committee aide said the investigation into the issue is active and ongoing. The aide cited a December letter that Davis, Waxman, Issa and Rep. Diane Watson (D-Calif.) penned to the Justice Department last year that sought DOJ review of the government's legal right to compel payment of royalties from the flawed leases (E&ENews PM, Dec. 14, 2006).

The aide said no decisions have been made about whether to hold new hearings on the royalty issue.

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