More Work Ahead on Deepwater Leases

I’m happy to report that we at the House Committee on Government Reform have made some progress on efforts to recover royalty revenue from flawed federal leases for deepwater drilling in the Gulf of Mexico in the late-1990s.

As you may know, back then, in an effort to get oil companies to explore in deepwater portions of the Gulf – which is more expensive than other offshore operations – the Interior Department established royalty relief for deepwater leases. It waived royalties for a certain volume of oil and natural gas that was produced unless the price of oil or natural gas climbed above “price thresholds.

Since then, our committee – particularly the Subcommittee on Energy and Resources, headed by Rep. Darrell Issa (R-Calif.) – has been asking hard questions of the Department of the Interior in general and the MMS in particular about these leases and what is being done to recover these funds for taxpayers.

Last week, the Department of the Interior’s Minerals Management Service announced it had signed agreements with five oil companies to pay royalties from deepwater wells covered by the leases – but only on production after Oct. 1, 2006. This is good but not good enough. The agreement did not address production from the time the leases were negotiated until Oct. 1. And 50 companies that also hold deepwater leases that lack the $35-per-barrel provision either have not reached agreement or have not even begun to negotiate with MMS. That’s almost $2 billion owed to American taxpayers that the Department of the Interior is doing nothing – or certainly not enough – to recover.

Also last week, I, Chairman Issa, Ranking Member Henry Waxman (D-Calif.), and Rep. Diane Watson (D-Calif.) sent a letter to U.S. Attorney General Alberto Gonzalez requesting that he assess a legal opinion recently sent to the Committee that asserts that MMS may have exceeded its authority in signing leases without price thresholds in 1998 and 1999. The analysis concludes that the Justice Department has legal recourse to seek recovery of lost taxpayer revenues.

If Attorney General Gonzalez agrees and the legal analysis holds, we could get to work recovering this lost revenue for American taxpayers.