Big Oil Strikes It Rich With Royalties

Interior Dept.: $66B In Oil Revenue Tax Exempt Through 2011

(CBS/AP) 
Like Markey, Rep. George Miller, D-Calif., opposed the 1995 "royalty holiday" for oil companies.

"It's one of the most egregious giveaways of taxpayer money in our history and it can and should be stopped," said Miller.

Republicans also have expressed second thoughts about the royalty relief. Rep. Richard Pombo, R-Calif., chairman of the House Resources Committee, told the Times: "I don't think there's a single member of Congress who thinks you should get royalty relief at $70 a barrel."

Oil prices reached that level briefly in recent months.

The 1995 law includes a provision that if oil and natural gas prices pass a certain level, $34.71 a barrel for oil and $4.34 per thousand cubic feet for gas, royalties will be imposed even in leases covered by the royalty relief.

According to the Interior Department, those annual thresholds were exceeded repeatedly over the last five years for natural gas and in the last two years for oil.

Last December, the department sent letters to the companies demanding royalty payments, and $425 million was collected from 38 of 41 companies, according to Walter Cruickshank, deputy director of the Minerals Management Service.

But Cruickshank said nine companies have challenged the legality of the price threshold on leases issued between 1996 and 2000. Kerr-McGee Corp., an oil and natural-gas producer, has said it will fight the issue in court.

However, as Mason reports, there is not much Congress can do because the leases are contracts, and the government will have to honor them.

Cruickshank, in a Feb. 9 department memo, said that the department needs to "carefully consider how to approach this issue" because an adverse court ruling could "place more than $500 million of past royalties and an undetermined amount of future royalties at risk."

Even with the price threshold, millions of barrels of oil and billions of cubic feet of natural gas will not be subject to royalty payments.

The 1995 law exempted leases issued in 1998 and 1999 from the price threshold, accounting for about two-thirds of the royalty-free gas and millions of barrels of oil.

Last year an estimated 247 billion cubic feet of natural gas and 16.5 million barrels of oil were taken from the Gulf without royalties having been paid either because they were exempt from the threshold or because "companies have chosen not to pay even though the (price) thresholds have been exceeded," Cruickshank wrote in another memo.