Bipartisan effort in House will target federal oil leases

House Government Reform Committee leaders are seeking a Justice Department review of whether the federal government can recover lost federal royalty payments stemming from flawed oil and gas production leases.

Committee leaders want the Interior Department to force oil and gas companies to pay royalties lost when Clinton administration officials failed to include provisions in deepwater production leases issued in 1998 and 1999 that required companies to pay federal royalties if the cost of oil or gas reached certain price thresholds.

The Government Accountability Office has estimated that the omission of price thresholds in those lease agreements has cost the government nearly $2 billion and will cost an additional $8 billion over the life of the leases.

The Interior Department announced Thursday an agreement with a handful of companies to start paying royalties stemming from those 1998 and 1999 leases on production beginning in October of this year, but the deal does not reach back to production that occurred before October. Many companies have refused to voluntarily renegotiate those leases, and department officials say they cannot force them to do so.

But attorney Stephen Lowey, husband of Rep. Nita Lowey, D-N.Y., prepared a legal analysis that asserts "you have legal recourse to immediately seek recovery of lost taxpayer revenues," according to a Dec. 14 letter Government Reform Committee leaders sent to Attorney General Gonzales. Lowey argues in his analysis that the inclusion of price thresholds in lease agreements is mandatory, not discretionary, under the Deep Water Royalty Relief Act.

Incoming Government Reform Chairman Henry Waxman, D-Calif., incoming ranking member Tom Davis, R-Va., and the top Democrat and Republican on the soon-to-be-defunct Energy and Resources Subcommittee -- Reps. Diane Watson, D-Calif. and Darrell Issa, R-Calif. -- signed the letter. The analysis from Lowey was sent unsolicited to the Government Reform Committee but underscores the opinion of committee leaders, a GOP committee spokesman said.

While committee staff has met with Justice Department officials, they have not presented them with its legal analysis and will not do so in light of Lowey's analysis. "He's staked out the path," the committee spokesman said.

The Interior Department agreement announced Thursday was reached with BP, ConocoPhilips, Marathon Oil Company, Shell and Walter Oil and Gas Corp. and represents roughly 23 percent of the deepwater leases that were issued without price thresholds in 1998 and 1999, a Minerals Management Service spokesman said. Assistant Secretary of Land and Minerals Management Stephen Allred called the agreement "a step in the right direction."

Some of the remaining 41 companies that hold those agreements have started negotiating with the department as well, the MMS spokesman said. Incoming House Speaker Nancy Pelosi, D-Calif., said Thursday Democrats are moving forward next year with a plan to require companies to pay royalties to the federal government when oil reaches $40 or more a barrel as part of a larger effort to roll back federal subsidies for oil and gas companies.

The Interior Department inspector general's office also is planning to issue a report in mid-January on the missing thresholds in the 1998 and 1999 leases, according to Rep. Edward Markey, D-Mass. There were 1,040 leases issued without price thresholds and 570 of those remain active.

MMS has estimated that until recently the total revenue lost to the federal government amounted to just under $900 million, which does not include future production occurring under those leases.