Interior hopes to recoup oil, gas royalties

WASHINGTON — The Interior Department is negotiating with 22 companies to try to recoup lost oil and gas royalties because of a government leasing mistake, according to the head of the agency that runs the lease program.

Johnnie Burton, director of the department’s Minerals Management Service, did not name the companies, but she said she looked forward to reaching additional agreements in the near future.

In a letter to Rep. Maurice Hinchey, D-N.Y., Burton said agreements reached in December with six companies would reap the government $1.42 billion in additional royalties from future production under the flawed leases.

Those companies account for about 20 percent of the flawed leases where there have been oil or gas discoveries in the deep waters of the Gulf of Mexico.

The government has not been able to collect royalties on the deep-water leases issued in 1998-99 because a provision was omitted that would have triggered royalty payments once the market price for the oil or gas reached a certain level.

In recent years prices have far exceeded that threshold.

Burton, in the letter to Hinchey, said the agency estimates the lost royalties from past production under those leases is about $956 million, far less than the $2 billion that has been cited by some lawmakers.

There are more than 40 holders of 1998-99 leases that have refused to pay the royalties they avoided because of the government mistake.

The companies generally argue that the leases are a valid contract that the government must stand by — even if an error was committed.

About half of those companies have refused even to discuss the matter with the Interior Department and one — Kerr McGee Oil & Gas Corp. — has challenged in court the right for the government to impose a price threshold altogether.

Ironically, 25 of the companies refusing to rework the 1998-99 leases were aggressively seeking new leases last year.

Burton said 24 of the companies were awarded 404 leases in two sales in 2006. Another company bid on a lease but was not awarded it because it was not the high bidder.

In testimony before a House subcommittee on Tuesday, Burton said the 2006 lease sales in the Gulf of Mexico brought the government nearly $923 million.

“Near record oil and gas prices led to robust bidding,” said Burton.

If oil or gas is found under those leases and produced, it will be subject to federal royalties.

Legislation before Congress would bar companies from bidding on new leases in the Gulf of Mexico unless they agree to renegotiate the flawed 1998-99 leases and pay the lost royalties. That bill has passed the House, but awaits Senate action.