Ruling Broadens House Royalties Plan

A recent court ruling would expand the reach of House energy legislation that seeks federal royalties from oil companies holding late 1990s Gulf of Mexico leases, congressional researchers said late last week.

The Congressional Research Service memo describes the effect of pending energy legislation in light of a federal judge's decision that restricts Interior Department power to end royalty incentives for deep water producers.

Judge Patricia Minaldi of the U.S. District Court for the Western District of Louisiana agreed with the Kerr-McGee Oil and Gas Corp. that Interior cannot impose price thresholds on deepwater leases issued between 1996 and 2000 that allow "royalty relief" (Greenwire, Nov. 1). The price clauses end the incentive when oil and gas prices surpass certain limits.

Deepwater leases issued in 1998 and 1999 already lack the price clauses, an oversight that could jeopardize billions of dollars in future royalties. Controversial language in sweeping House energy legislation seeks to ensure royalty payments from producers in the Gulf of Mexico holding these leases. It would bar them from buying new gulf leases unless they agree to the price clauses or pay other fees.

But the CRS memo says that if the Kerr-McGee decision is upheld, the House plan would impose the same conditions on 1996, 1997 and 2000 leases. The memo states that "any entity that holds a deepwater lease issued between 1996 and 2000 would be ineligible for future oil or natural gas production leases in the Gulf of Mexico pursuant to ... the proposed act until that entity either renegotiates the lease in question or pays a 'conservation of resources' fee."

Broad energy legislation the Senate approved over the summer does not include the leasing provision, and the House and Senate are trying to reach a final agreement on energy legislation this year. The CRS memo was released Friday by Rep. Ed Markey (D-Mass.), who authored the House royalty provision.

Some oil companies have signaled that they will file lawsuits if Congress approves legislation that bars them from buying new leases unless they rework contracts that lack price thresholds (Greenwire, Nov. 7)

Markey used the CRS memo Friday to tout the House language, saying it will ensure billions of dollars in royalty payments regardless of industry litigation. "Since they will pay either way, the oil companies should lift their lawsuits and pay their fair share of royalties to taxpayers," Markey said in a prepared statement.

Interior is urging the Justice Department to appeal the Kerr-McGee decision. The agency has estimated that if the decision stands, it could jeopardize $60 billion in future royalties from scores of gulf oil producers.

Kerr-McGee was purchased last year by Anadarko Petroleum Corp.

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